SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K/A
AMENDMENT TO CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 1, 1995
Checkpoint Systems, Inc.
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania
------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
1-11257 22-1895850
-------------------- --------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
101 Wolf Drive, PO Box 188 Thorofare, New Jersey 08086
----------------------------------------------------------------------
(Address of principal executive offices)
(609) 848-1800
- ------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- -----------------------------------------------------------------------
(Former name or address, if changed since last report)
<PAGE>
Item 7. Financial Statements and Exhibits
------ ----------------------------------
Filed herewith as Items 7(a) and (b) to this Form 8-K/A are the
required financial statements and proforma financial information relating
to the acquisition by Checkpoint Systems, Inc. (the "Registrant") of all of
the issued and outstanding capital stock of Alarmex, Inc. ("Alarmex") and
a related company, Bayport Controls, Inc. ("Bayport). Such transaction is
more fully described in the Current Report on Form 8-K filed by the
Registrant on February 15, 1995.
Item 7(a) Financial Statements of Business Acquired
- --------- -----------------------------------------
INDEX TO FINANCIAL STATEMENTS
I. ALARMEX, INC. AND SUBSIDIARY AND BAYPORT CONTROLS, INC.
FINANCIAL STATEMENTS
Report of Independent Accountants
Combined Balance Sheet
Combined Statement of Operations
Combined Statement of Stockholders' Equity
Combined Statement of Cash Flows
Notes to Combined Financial Statements
Item 7(b) Pro Forma Consolidated Financial Information
- --------- --------------------------------------------
I. Introduction to Historical and Pro Forma Consolidated
Financial Statements
II. Historical and Pro Forma Consolidated Balance Sheet
as of December 25, 1994
III. Notes to Historical and Pro Forma Consolidated Balance
Sheet as of December 25, 1994
IV. Historical and Pro Forma Consolidated Statement of Operations
For the Year Ended December 25, 1994
V. Notes to Historical and Pro Forma Consolidated Statement of
Operations For the Year Ended December 25, 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Alarmex, Inc. and Subsidiary
and Bayport Controls, Inc.:
We have audited the accompanying combined balance sheet of Alarmex, Inc.
and Subsidiary and Bayport Controls, Inc. (the Companies) as of December 31,
1994, and the related combined statements of operations, stockholders'
equity and cash flows for the year then ended. These financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit 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 also 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 audit provides a reasonable basis for our
opinion.
As discussed in Note 13 to the combined financial statements, the
Companies were acquired under stock purchase agreements on February 1, 1995.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Alarmex, Inc. and
Subsidiary and Bayport Controls, Inc. as of December 31, 1994, and the
combined results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
As discussed in Note 11 to the combined financial statements, Alarmex, Inc.
(as a limited partner) has an investment of approximately $125,000 in certain
low income housing partnerships. Alarmex, Inc. has utilized tax credits in
the amount of approximately $290,000 which arose from this investment. It
is alleged that the general partner may have misappropriated limited partner
funds previously thought to have been invested in certain low income housing
partnerships. Alarmex, Inc. is not presently aware if these allegations, or
any consequences arising therefrom, or other matters discussed more fully in
Note 11 will have any impact on its specific partnership investments.
Additionally, as also discussed in Note 11, the Internal Revenue Service has
made inquiries related to certain defined benefit plan filings of Alarmex,
Inc. The ultimate outcome of the above matters cannot presently be
determined. Accordingly, no provision for any liability that may result from
the resolution of these matters has been made in the accompanying combined
financial statements.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
February 28, 1995
<PAGE>
ALARMEX, INC. AND SUBSIDIARY
AND
BAYPORT CONTROLS, INC.
COMBINED BALANCE SHEET
as of December 31, 1994
ASSETS
Current assets:
Cash $ 18,290
Accounts receivable, less allowance
of $175,860 4,593,759
Inventories 4,346,136
Net investment in sales-type leases, current
portion 63,218
Prepaid pension cost 218,115
Prepaid expenses and other current assets 180,049
Deferred income taxes 116,000
---------
Total current assets 9,535,567
=========
Property and equipment, net 689,474
Investment in partnerships 314,882
Intangible and other assets, net 337,257
Net investment in sales-type leases, noncurrent
portion 145,561
Deferred income taxes 249,000
---------
$11,271,741
===========
The accompanying notes are an integral part
of the combined financial statements.
<PAGE>
ALARMEX, INC. AND SUBSIDIARY
AND
BAYPORT CONTROLS, INC.
COMBINED BALANCE SHEET
as of December 31, 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 1,997,491
Current maturities of long-term debt 923,275
Current maturities of capital lease obligations 77,534
Accounts payable 2,547,903
Accrued payroll, benefits and related taxes 312,049
Accrued warranty expense 144,000
Other accrued expenses 541,310
Current portion of deferred compensation 30,000
Income taxes payable 419,984
Deferred revenue 982,593
Due to stockholder 81,443
---------
Total current liabilities 8,057,582
Long-term portion of deferred compensation 240,000
Capital lease obligations, net of current
maturities 171,226
Safe harbor lease liability 22,154
Commitments and contingencies
Stockholders' equity:
Common stock, Alarmex, Inc., $10 par value;
2,500 shares authorized; 900 shares issued
and outstanding 9,000
Common stock, Bayport Controls, Inc., $.01 par
value; 1,000,000 shares authorized, 1,000
shares issued and outstanding 10
Retained earnings 2,771,769
----------
Total stockholders' equity 2,780,779
-----------
$11,271,741
===========
The accompanying notes are an integral part
of the combined financial statements.
<PAGE>
ALARMEX, INC. AND SUBSIDIARY
AND
BAYPORT CONTROLS, INC.
COMBINED STATEMENT OF OPERATIONS
for the year ended December 31, 1994
Revenues:
Installation $16,939,551
Service 3,606,212
Monitoring 2,131,680
----------
Total revenues 22,677,443
Cost of revenues:
Installation 10,053,465
Service 1,870,390
Monitoring 1,067,100
----------
Total cost of revenues 12,990,955
Gross margin 9,686,488
Selling, general and administrative expenses 8,169,431
----------
Income from operations 1,517,057
Other income (expense):
Interest income 26,821
Interest expense (254,855)
Other (3,876)
----------
Income before income taxes 1,285,147
Provision for income taxes 278,000
----------
Net income $ 1,007,147
===========
The accompanying notes are an integral part
of the combined financial statements.
<PAGE>
ALARMEX, INC. AND SUBSIDIARY
AND
BAYPORT CONTROLS, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
for the year ended December 31, 1994
Alarmex, Inc. Bayport Controls, Inc.
-------------- -------------------------------
Par Par Retained
Shares Value Shares Value Earnings Total
------ ------ ------ ----- --------- ---------
Balances at
December 31, 1993 900 $9,000 1,000 $10 $2,170,228 $2,179,238
Net income for 1994 - - - - 1,007,147 1,007,147
Distribution to
stockholder - - - - (405,606) (405,606)
--- ------ ----- --- ---------- ----------
Balances at
December 31, 1994 900 $9,000 1,000 $10 $2,771,769 $2,780,779
=== ====== ===== === ========== ==========
The accompanying notes are an integral part
of the combined financial statements.
<PAGE>
ALARMEX, INC. AND SUBSIDIARY
AND
BAYPORT CONTROLS, INC.
COMBINED STATEMENT OF CASH FLOWS
for the year ended December 31, 1994
Cash flows from operating activities:
Net income $ 1,007,147
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 421,184
Provision for uncollectible accounts receivable 86,000
Provision for inventory valuation allowance 75,000
Partnership investment income (4,500)
Interest on due to stockholder balance, Bayport 9,579
Deferred income taxes (176,000)
Changes in operating assets and liabilities:
Accounts receivable ( 41,281)
Inventories (1,028,625)
Prepaid expenses and other 27,038
Accounts payable (1,930,821)
Accrued expenses 281,021
Income taxes payable 75,150
Deferred revenues 300,110
Deferred compensation ( 30,000)
----------
Net cash used in operating activities ( 928,998)
----------
Cash flows from investing activities:
Proceeds from investments sold 14,545
Purchase of property and equipment (230,760)
Proceeds from sales-type leases 77,265
----------
Net cash used in investing activities ( 138,950)
----------
Cash flows from financing activities:
Proceeds from borrowings under revolving line
of credit 2,716,067
Payments on revolving line of credit (2,468,576)
Principal payments of long-term debt (367,638)
Increase in Alarmex cash overdraft 1,294,688
Payment of capital lease obligations (60,011)
Safe harbor lease payments (23,979)
Advance to stockholder ( 124,600)
-----------
Net cash provided by financing activities 965,951
-----------
Net decrease in cash (101,997)
Cash at beginning of year 120,287
-----------
Cash at end of year $ 18,290
===========
Supplemental information:
Interest paid $238,686
Income taxes paid 311,808
The accompanying notes are an integral part
of the combined financial statements.
<PAGE>
ALARMEX, INC. AND SUBSIDIARY
AND
BAYPORT CONTROLS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Nature of Business and Significant Accounting Policies:
------------------------------------------------------
NATURE OF BUSINESS:
------------------
Alarmex, Inc. is engaged in selling and installing, monitoring and
servicing electronic security systems for both commercial and
residential applications. Bayport Controls, Inc. manufactures equipment
for electronic surveillance systems used primarily in commercial
operations.
COMBINATION:
-----------
The combined financial statements include the accounts of Alarmex, Inc.
and its wholly owned subsidiary (Alarmex), and the accounts of an
affiliated entity, Bayport Controls, Inc. (Bayport). All significant
intercompany balances and transactions have been eliminated in
combination.
INVENTORIES:
-----------
Inventories are stated at the lower of cost or market, with cost
determined using the first-in, first-out method (FIFO).
EQUIPMENT LEASING TRANSACTIONS:
------------------------------
Alarmex leases certain products to customers under noncancellable
sales-type leases. Such agreements generally provide for monthly
equipment rental payments for a period of three to five years with an
option to renew. The aggregate lease payments receivable and
estimated equipment residual value are recorded at the inception of
the lease. The difference between the aggregate and the present
value of these two components is treated as unearned interest income
and is recognized over the initial term of the lease using the effective
interest method. The present value of the aggregate lease payments is
currently recorded as installation revenue.
PROPERTY AND EQUIPMENT:
----------------------
Property and equipment are stated at cost and are depreciated using the
straight-line method over estimated useful lives of primarily five to
seven years.
Maintenance and repairs which do not improve or extend the life of the
respective assets are expensed as incurred. The cost and related
accumulated amortization of assets sold or disposed of are removed from
the accounts and the resulting gain or loss is included in the results of
operations.
<PAGE>
ALARMEX, INC. AND SUBSIDIARY
AND
BAYPORT CONTROLS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
1. Nature of Business and Significant Accounting Policies, continued:
------------------------------------------------------
INVESTMENT IN PARTNERSHIPS:
--------------------------
Alarmex has invested in low income housing partnership units. These
investments generate tax credits which are used to offset taxable income.
The investments are accounted for on the equity method of accounting.
INTANGIBLE AND OTHER ASSETS:
---------------------------
The excess of cost over net assets of the business acquired (goodwill) is
being amortized on a straight-line basis over a 15-year period. Other
assets consist primarily of a noncompete agreement and other acquisition-
related assets, which are being amortized over the estimated useful lives
of two to three years, using the straight-line method. These acquisition-
related assets arose from the June 1993 purchase of the assets of Alert
Alarms, Inc., a residential security service provider.
REVENUE RECOGNITION:
-------------------
Revenue from the installation and servicing of electronic security
systems is recognized upon completion of the job. Cost incurred in
connection with the installation of security systems prior to the
completion of the job are accumulated in work-in- process inventory.
Revenue from alarm monitoring is recognized in the period that services
are rendered. Deferred revenue represents billings in advance of
monitoring services being rendered.
PROVISION FOR WARRANTY CLAIMS:
-----------------------------
Estimated warranty costs are recognized at the time of sale of warranted
products.
INCOME TAXES:
------------
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year end based on enacted tax
laws and statutory tax rates applicable to the periods in which
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable
for the period and the change during the period in deferred tax assets
and liabilities.
<PAGE>
ALARMEX, INC. AND SUBSIDIARY
AND
BAYPORT CONTROLS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
1. Nature of Business and Significant Accounting Policies, continued:
------------------------------------------------------
INCOME TAXES, continued:
-------------
Bayport has elected, under the Internal Revenue Code, to be an S
Corporation. Therefore, no provision (benefit) or liability
(receivable) for federal or state income taxes has been included in
these financial statements related to Bayport.
2. Selected Financial Statement Information:
----------------------------------------
Inventories:
Raw materials $2,784,758
Work-in-process 1,636,378
---------
4,421,136
Less valuation allowance 75,000
---------
$4,346,136
==========
Property and equipment:
Furniture and fixtures 177,025
Equipment 829,773
---------
1,006,798
Less accumulated depreciation and
amortization 317,324
---------
$ 689,474
==========
Intangible and other assets:
Goodwill 100,000
Noncompete 300,000
Other assets, primarily monitoring
contracts 475,000
---------
875,000
Less accumulated amortization 537,743
---------
$ 337,257
==========
<PAGE>
ALARMEX, INC. AND SUBSIDIARY
AND
BAYPORT CONTROLS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
SUPPLEMENTAL CASH FLOW DISCLOSURE:
---------------------------------
During 1994, Alarmex entered into capital leases in the amount of $307,379
for computer and office equipment. Also during 1994, Bayport's retained
earnings were distributed out through an increase in the due to
stockholder balance.
STATEMENT OF OPERATIONS:
-----------------------
Included in selling, general and administrative expenses is approximately
$213,000 of research and development costs.
3. Net Investment in Sales-Type Leases:
-----------------------------------
During 1994, Alarmex executed $189,097 of sales-type leases.
The net investment in sales-type leases consisted of the following at
December 31, 1994:
Amounts to be received in:
1995 $ 91,088
1996 74,531
1997 51,795
1998 37,034
1999 16,348
-------
Total minimum lease payments receivable 270,796
Less unearned finance interest (rates ranging
from 15% to 20%) 62,017
-------
Net investment in sales-type leases 208,779
Less current portion 63,218
--------
Long-term portion $145,561
========
4. Revolving Line of Credit Agreement:
----------------------------------
Alarmex has a revolving line of credit agreement providing for advances
of up to $2,000,000, collateralized by substantially all assets of the
Company. Borrowings under this revolving line of credit are personally
guaranteed by a stockholder of Alarmex. The available line is based on
70% of eligible accounts receivable from installation billings and 50%
of certain inventories. Amounts outstanding under this agreement are
<PAGE>
ALARMEX, INC. AND SUBSIDIARY
AND
BAYPORT CONTROLS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
due on demand and bear interest, payable monthly, at the bank's
reference rate plus 1.75% (the reference rate was 8.5% at December 31,
1994). The revolving line of credit agreement, as amended in November
1994, contains customary covenants, which include minimum tangible net
worth, working capital and current ratio requirements. The agreement
expired in February 1995. The acquiring company (Note 13) paid off the
outstanding balance on this line of credit in February 1995.
5. Long-Term Debt:
--------------
Long-term debt consists of the following:
Note payable, to same bank as revolving line
of credit: Payable in monthly installments
of $20,779, including principal and
interest computed at the bank's reference
rate plus 2.5%, balance due August 10,
1998. $783,360
Note payable, to same bank as revolving line
of credit: Payable in quarterly principal
payments of $10,000 through June 30,
1997. The note bears interest at the bank's
reference rate plus 2.25%; interest is
payable in monthly installments through
September 30, 1997. 120,000
Other notes payable 19,915
--------
$923,275
========
The notes payable, bank, were paid off by the acquiring
company in February 1995 and the other notes payable
were paid off pursuant to their terms as of February
28, 1995. Accordingly, these obligations are
classified as current as of December 31, 1994.
6. Leases:
------
The Companies lease office, warehouse facilities and certain equipment
under noncancellable operating leases expiring at various dates through
1998. The facilities leases include provisions for paying a pro rata
share of the lessor's operating costs and certain other expenses
applicable to the leased premises, and contain certain renewal options as
defined in the leases. Rent expense under all leases was approximately
$472,000 for the year ended 1994.
The Companies also lease certain equipment under capital leases.
Interest on these leases ranges from 5.3% to 17.4%. Certain capital
leases contain bargain purchase options or the
<PAGE>
ALARMEX, INC. AND SUBSIDIARY
AND
BAYPORT CONTROLS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
6. Leases, continued:
------
option to purchase equipment at its fair market value at the end of
the lease term. Total capital leases are as follows:
Office equipment $307,379
Less accumulated depreciation 19,003
--------
$288,376
========
Future minimum lease payments under these capital and operating leases
are as follows:
Capital Operating
Leases Leases
------- ---------
1995 $110,396 $333,679
1996 96,396 228,670
1997 96,396 118,232
1998 58,121 78,947
1999 412
------- -------
361,721 $759,528
Less amount representing interest 112,961 ========
-------
Present value of minimum lease payments 248,760
Less current portion 77,534
--------
$171,226
========
7. Income Taxes:
------------
The components of the income tax provision for the year ended
December 31, 1994, is as follows:
Current:
Federal $347,000
State 107,000
Deferred (176,000)
---------
$ 278,000
=========
<PAGE>
ALARMEX, INC. AND SUBSIDIARY
AND
BAYPORT CONTROLS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
7. Income Taxes, continued:
------------
The effective tax rate varies from the statutory federal income tax rate
for the following reasons:
Statutory rate 34.0%
Effect of combination with
affiliated S Corporation (13.2)
State income taxes, net of federal benefit 5.3
Officers' life insurance 2.9
Low income housing tax credits (7.3)
Other (.1)
------
Effective tax rate 21.6%
======
Deferred income tax assets result primarily from future deductible
temporary differences related to deferred compensation recognized for
financial reporting purposes that is not recognized for tax reporting
purposes, allowances for bad debts, inventory valuation allowances and
warranty reserves established for financial reporting purposes, and
amortization period differences between financial reporting and tax
reporting for acquisition-related assets.
Management expects that Alarmex will fully realize the benefits
attributable to these future deductible temporary differences through
carrybacks against taxes paid in prior years. Therefore, no valuation
allowance has been recorded at December 31, 1994, related to the deferred
tax assets.
8. Safe Harbor Lease:
-----------------
During 1987, Alarmex purchased all of the outstanding capital stock of
B-T Leasing Company (B-T). B-T's assets and related liabilities consist
primarily of equipment leases and future tax payments with a net present
value of approximately $22,154 at December 31, 1994. Estimated payments
for the tax effects of the safe harbor leases are as follows:
1995 $38,258
1996 47,789
1997 59,964
<PAGE>
ALARMEX, INC. AND SUBSIDIARY
AND
BAYPORT CONTROLS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
9. Defined Benefit Pension Plan:
----------------------------
On February 15, 1995, the Board of Directors of Alarmex authorized the
termination of the Company's noncontributory defined benefit plan with
all participants under the plan vesting 100% in their respective accrued
benefit as of this date. Plan benefits were frozen as of December 31,
1994. The defined benefit plan covered all employees who met specified
age and service requirements. Alarmex's policy was to annually fund
pension cost accrued. Plan assets consist primarily of direct
investments in equity instruments, as well as money market assets.
Components of the net periodic pension cost and other information
reflects this benefit freeze and the corresponding curtailment under
Statement of Financial Accounting Standards No. 88. The estimated
settlement loss to be recognized subsequent to 1994 is approximately
$218,000.
Components of net periodic pension cost, funded status and other
information, computed for the year ended December 31, 1994 is as follows:
Service cost $ 95,932
Interest cost 78,133
Actual return on assets (55,652)
Net amortization and deferral (378)
-----------
Net periodic pension cost 118,035
Recognition of prior service cost due to
curtailment (21,918)
-----------
$ 96,117
==========
Actuarial present value of benefit obligations:
Vested accumulated benefit obligations $1,146,728
==========
Projected benefit obligation 1,146,728
Plan assets at fair value 1,147,284
----------
Plan assets in excess of projected benefit
obligation 556
Add:
Unrecognized net loss 217,559
----------
Net prepaid pension cost $ 218,115
==========
<PAGE>
9. Defined Benefit Pension Plan, continued:
----------------------------
The projected benefit obligation was determined using an assumed discount
rate of 7.26% for 1994 and an assumed rate of increase in future
compensation levels of 4.5%. The expected long-term rate of return on
plan assets was 8% for 1994.
10. Deferred Compensation:
---------------------
During 1993, Alarmex agreed to pay a retired employee/stockholder
$300,000, under a deferred compensation agreement. The terms of the
agreement require payment of $30,000 per year through 2003.
11. Contingencies:
-------------
During 1994, certain of the low income housing projects that Alarmex has
invested in as a limited partner have moved into liquidation proceedings
as a result of insolvency of the general partner. At December 31, 1994,
approximately $125,000 is recorded as the carrying value for the projects
in liquidation. Additionally, Alarmex has previously reduced its tax
liability by utilizing approximately $290,000 in tax credits. It is
currently alleged that the general partner misappropriated funds
previously thought to have been invested in certain low income housing
projects. Alarmex is not presently aware of whether these allegations,
or any consequences arising therefrom, will have any impact on its
specific partnership investments. As a result, Alarmex is currently
uncertain as to what claim, if any, it may have in the ultimate
liquidation proceeds, as well as to the ultimate realization of the tax
credits previously taken. Accordingly, no provision for any loss that
may result from resolution of this matter has been made in the combined
financial statements.
There are also other claims and uncertainties related to Alarmex,
including an IRS inquiry related to certain defined benefit plan
filings. Management is unable to determine the potential outcome
associated with this claim and, accordingly, has not recognized any
liability.
<PAGE>
ALARMEX, INC. AND SUBSIDIARY
AND
BAYPORT CONTROLS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
12. Major Customers:
---------------
For the year ended December 31, 1994, one customer accounted for
approximately 34% of total revenue. Four other customers accounted for
approximately 33% of total revenue, but none of these customers
individually was in excess of 10% of total revenue.
13. Acquisition:
-----------
On February 1, 1995, Alarmex sold all of its stock in exchange for
$10,000,000 and Bayport sold its stock in exchange for 200,717 shares of
common stock of the acquiring company, Checkpoint Systems, Inc. Of the
cash consideration, $7,000,000 was paid to Alarmex on closing and
$3,000,000 was transferred to an escrow account. The amount held in
escrow is subject to adjustment, based upon a final determination of the
combined stockholders' equity of Alarmex and Bayport as of December 31,
1994. The parties have until March 10, 1995, to deliver a letter to the
escrow agent signed by each of them setting forth the amount of
stockholders' equity and the amount of the adjustment to the purchase
price, if any. If the parties cannot agree, the determination of
stockholders' equity is subject to arbitration proceedings.
The stock purchase agreements contain indemnity provisions, including a
provision that any breach of any representations and warranties by either
the seller or the buyer will result in indemnification payments to
the extent the damages, as a result of these breaches, exceeds $100,000.
This $100,000 amount does not apply to any claims related to the low
income housing investments reported on the balance sheet. The indemnity
provisions generally expire 18 months after the closing date.
<PAGE>
HISTORICAL AND PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS OF CHECKPOINT SYSTEMS, INC.
AND ALARMEX, INC. AND SUBSIDIARY
AND BAYPORT CONTROLS, INC.
The following pro forma consolidated financial statements of Checkpoint
Systems, Inc. have been prepared to reflect the following transaction:
1. The acquisition of 100% of the outstanding common stock of
Alarmex, Inc. And Subsidiary and Bayport Controls, Inc.
The pro forma balance sheet is prepared as if all of the transactions occurred
as of December 25, 1994. The pro forma statements of operations are prepared
as if the transaction occurred as of the beginning of the periods presented.
The pro forma consolidated financial statement of operations does not
purport to represent what Checkpoint's results of operations for the
period would actually have been had the consummated transaction in fact
occurred on the aforementioned dates, or to project Checkpoint's results of
operations for any future periods. The pro forma adjustments are based upon
available information and upon certain assumptions that management believes
are reasonable under the circumstances. These adjustments are directly
attributable to the consummated transaction and are expected to have a
continuing impact on the financial position and results of operations of
Checkpoint Systems, Inc.
The pro forma consolidated financial statements of operations should be
read in conjunction with Checkpoint's Financial Statements, including notes
thereto.
<PAGE>
CHECKPOINT SYSTEMS, INC.
HISTORICAL AND PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 25, 1994
Historical
------------------- Pro forma
Checkpoint Alarmex Adjustments Proforma
---------- ------- ----------- --------
(in thousands)
Current Assets
- --------------
Cash $ 944 $ 18 $ 2,105(1) $ 3,067
Accounts receivable, net 33,290 4,594 37,884
Inventories 29,486 4,346 1,304(2) 35,136
Other current assets 4,385 462 4,847
Deferred income taxes 1,117 116 1,233
------ ----- ------ ------
Total Current Assets 69,222 9,536 3,409 82,167
------ ----- ----- ------
Property, plant and
equipment, net of
accumulated depreciation 36,799 689 37,488
Excess of purchase price
over fair value of net
assets acquired 10,120 - 9,413(2) 19,533
Investment in partnerships - 315 315
Intangibles 5,826 337 6,163
Deferred taxes, net of
valuation allowances - 249 249
Other assets 5,958 146 6,104
------- ------ ------ -------
Total Assets $127,925 $11,272 $12,822 $152,019
======= ====== ====== =======
See accompanying notes to pro forma consolidated financial statements.
<PAGE>
CHECKPOINT SYSTEMS, INC.
HISTORICAL AND PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 25, 1994
Historical
------------------- Proforma
Checkpoint Alarmex Adjustments Proforma
---------- ------- ----------- ---------
(in thousands)
Current Liabilities
- -------------------
Accounts payable 10,064 2,548 12,612
Accrued Compensation 2,635 342 2,977
Income taxes 2,223 420 2,643
Unearned revenues 3,357 983 4,340
Other current liabilities 4,810 686 5,496
Short-term borrowings and
current portion long term 6,706 3,079 (2,895)(3) 6,890
------ ----- ------ ------
Total Current Liabilities 29,795 8,058 (2,895) 34,958
Long term debt, less current
maturities 35,556 433 15,000(3) 50,989
Deferred income taxes 1,271 - 1,271
(in thousands)
Shareholders' Equity
Preferred stock, no par value
Common stock, par value 1,128 9 11(4) 1,148
$.10 per share
Additional capital 21,592 3,478(4) 25,070
Retained earnings 46,789 2,772 (2,772)(2) 46,789
Common stock in treasury ( 5,664) (5,664)
Foreign currency
adjustment ( 2,542) - (2,542)
-------- ------ ------ -------
Total shareholders'
equity $61,303 $ 2,781 $ 717 $64,801
------- ------ ------ -------
Total Liabilities and
Shareholders' Equity $127,925 $11,272 $12,822 $152,019
======= ====== ====== =======
See accompanying notes to pro forma consolidated financial statements.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO THE HISTORICAL AND PRO FORMA
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 25, 1994
(1) Reflects the issuance of a $15.0 million eight-year note at an interest
rate of 9.35% (the "9.35% Note") less (i) payment of $10.0 million as the
cash portion of the purchase price for Alarmex and (ii) repayment of
$2.9 million of Alarmex debt.
(2) Reflects purchase accounting adjustments as a result of the Alarmex
Acquisition as follows:
Step-up in basis of Alarmex inventories $1.3 million
Increase in goodwill in connection
with the purchase of Alarmex $9.4 million
Elimination of the retained earnings of Alarmex $2.8 million
(3) Reflects (i) the issue of the 9.35% Note ($15.0 million), (ii) repayment
of $2.0 million of Alarmex revolving line of credit; and (iii) repayment
of $.9 million of Alarmex current maturities of long-term debt.
(4) Reflects the (i) issuance of 200,717 shares of Common Stock as the stock
portion of the purchase price (valued at a price of $17.43 per share)
and (ii) elimination of the stated value of Alarmex common stock.
<PAGE>
CHECKPOINT SYSTEMS, INC.
HISTORICAL AND PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS
AS OF DECEMBER 25, 1994
Historical
-------------------- Proforma
Checkpoint Alarmex Adjustments Proforma
---------- ------- ----------- --------
(in thousands)
Net revenues $128,331 $22,677 $ $151,008
Cost of revenues 66,360 12,991 -(1) 79,351
-------- -------- -------- --------
Gross profit 61,971 9,686 71,657
Selling, general and
administrative expenses 50,243 8,169 528(2) 58,940
Operating income 11,728 1,517 (528) 12,717
Interest expense, net 2,589 228 1,190(3) 4,007
Other expense 762 4 766
------ ----- ------ ------
Income before income tax 8,377 1,285 (1,718) 7,944
Income taxes 2,094 278 ( 428)(4) 1,944
------ ----- ------- ------
Net earnings 6,283 1,007 (1,290) $ 6,000
====== ===== ======= ======
Net earnings per share $ .58 $ .55
====== =======
Weighted average number
of common and common
equivalent shares 10,806 201(5) 11,007
====== ====== =======
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO THE
HISTORICAL AND PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS
AS OF DECEMBER 25, 1994
(1) The step-up in inventories of approximately $1.3 million described in
Note 2 to the Pro Forma Combined Balance Sheet Data is expected to be
included in fiscal year 1995 Cost of revenues, and therefore, is
excluded from the Pro Forma Consolidated Statement of Operations Data.
(2) Reflects the increase in amortization of goodwill (over a 20-year
period) in connection with the Alarmex Acquisition as if the acquisition
had occurred on December 27, 1993.
(3) Reflects the increase in interest expense due to the issue of the 9.35%
Notes offset by the reduction in interest expense due to the repayment
of Alarmex debt.
Fiscal Year
1994
(in thousands)
-------------
Interest on 9.35% Notes $ 1,403
Interest on Alarmex debt ( 213)
--------
Total $ 1,190
========
(4) Reflects the change in the provision for income taxes as a result of the
proforma adjustments. Such adjustments were based on the combined
effective federal and state tax rate of 36%, however, no deduction was
taken for the amortization of the goodwill acquired as this amount is not
deductible.
(5) Reflects the issuance of 200,717 shares of Common Stock as the stock
portion of the purchase price.
<PAGE>
Signature
---------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: March 16, 1995
Checkpoint Systems, Inc.
BY:
--------------------------
Mitchell T. Codkind
Corporate Controller and
Chief Accounting Officer
<PAGE>
