<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
For the quarter ended March 31, 1996
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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.)
101 Wolf Drive 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)
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
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As of May 1, 1996 there were 29,293,514 of the Common Stock
outstanding.
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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 Statement 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 4. Submission of Matters To a Vote Of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
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CHECKPOINT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
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ASSETS (Unaudited)
------ (Thousands)
CURRENT ASSETS
Cash and cash equivalents $ 70,882 $ 77,456
Accounts receivable, net of allowances
of $2,199,000 and $1,906,000 70,284 73,065
Inventories 49,254 54,941
Other current assets 7,306 7,479
Deferred income taxes 1,718 1,718
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Total current assets 199,444 214,659
REVENUE EQUIPMENT ON OPERATING LEASE, net 18,193 15,280
PROPERTY, PLANT AND EQUIPMENT, net 36,977 40,745
EXCESS OF PURCHASE PRICE OVER FAIR VALUE
OF NET ASSETS ACQUIRED 61,630 61,456
INTANGIBLES 15,220 14,930
OTHER ASSETS 23,599 15,081
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TOTAL ASSETS $355,063 $362,151
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 10,889 $ 16,643
Accrued compensation and related taxes 4,087 5,762
Income taxes 3,053 4,921
Unearned revenues 9,262 8,155
Other current liabilities 23,474 27,102
Short-term borrowings and current portion
of long-term debt 2,970 4,002
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Total current liabilities 53,735 66,585
LONG-TERM DEBT, LESS CURRENT MATURITIES 34,369 35,674
5 1/4% CONVERTIBLE SUBORDINATED DEBENTURES
WITH A SCHEDULED MATURITY IN 2005 120,000 120,000
DEFERRED INCOME TAXES 2,234 2,234
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
30,838,014 and 30,019,758 3,084 3,002
Additional capital 88,172 83,126
Retained earnings 61,144 58,198
Common stock in treasury, at cost,
1,598,000 shares (5,664) (5,664)
Foreign currency adjustments (2,011) (1,004)
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TOTAL SHAREHOLDERS' EQUITY 144,725 137,658
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $355,063 $362,151
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See accompanying notes to consolidated financial statements.
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CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter (13 Weeks) Ended
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March 31, March 26,
1996 1995
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(Thousands, except per share data)
Net Revenues $66,994 $37,360
Cost of Revenues 39,556 21,269
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Gross Profit 27,438 16,091
Selling, General and Administrative
Expenses 22,259 14,627
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Operating Income 5,179 1,464
Interest Income 1,019 169
Interest Expense (2,343) (1,056)
Foreign Exchange Gain (Loss) 478 (286)
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Earnings Before Income Taxes 4,333 291
Income Taxes 1,387 87
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Net Earnings $ 2,946 $ 204
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Net Earnings Per Share $ .10 $ .01
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CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
Three Months(13 Weeks) Ended March 31, 1996
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Foreign
Common Additional Retained Treasury Currency
Stock Capital Earnings Stock Adjust. Total
------- ------- ------- ------- ------- ------
(Thousands)
Balance,
December 31,
1995 (1) $ 3,002 $83,126 $58,198 $(5,664) $(1,004) $137,658
Net Earnings 2,946 2,946
Exercise of Stock
Options 82 5,046 5,128
Foreign Currency
Adjustments (1,007) (1,007)
------- ------- ------- ------- ------- -------
Balance at
March 31, 1996 $ 3,084 $88,172 $61,144 $(5,664) $ (2,011) 144,725
======= ======= ======= ======= ======= =======
(1) After giving retroactive effect to the February 1996 Stock Split.
See accompanying notes to consolidated financial statements.
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CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months(13 Weeks) Ended
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March 31, March 26,
1996 1995
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(Thousands)
Cash inflow (outflow) from operating activities:
Net earnings $ 2,946 $ 204
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Net book value of rented equipment sold 210 168
Long-term customer contracts (3,124) (196)
Depreciation and amortization 4,291 2,737
Provision for losses on accounts receivable 432 251
(Increase) decrease in current assets:
Accounts receivable 2,174 (1,470)
Inventories 970 (4,341)
Other current assets 153 580
Increase (decrease) in current liabilities:
Accounts payable (5,786) (4,140)
Accrued compensation and related taxes (1,687) 145
Income taxes (1,877) (1,402)
Unearned revenues 1,080 469
Other current liabilities (3,795) (581)
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Net cash used by operating activities (4,013) (7,576)
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Cash inflow (outflow) from investing activities:
Acquisition of property, plant and equipment (2,168) (2,335)
Acquisition, net of cash acquired - (10,061)
Other investing activities (3,686) (420)
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Net cash used by investing activities (5,854) (12,816)
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Cash inflow (outflow) from financing activities:
Proceeds from stock options 5,128 795
Proceeds of debt - 38,000
Payment of debt (1,835) (18,998)
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Net cash provided by financing activities 3,293 19,797
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Net increase (decrease) in cash and cash
equivalents (6,574) (595)
Cash and cash equivalents:
Beginning of period 77,456 944
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End of period $ 70,882 $ 349
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See accompanying notes to consolidated 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 on Form 10-K for the
fiscal year ended December 31, 1995 for the most recent disclosure of the
Company's accounting policies.
The consolidated financial statements include all adjustments, consisting
only of normal recurring accruals, necessary to present fairly the Company's
financial position at March 31, 1996 and December 31, 1995 and its results
of operations and changes in cash flows for the thirteen week periods ended
March 31, 1996 and March 26, 1995.
2. INVENTORIES
March 31, December 31,
1996 1995
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(Thousands)
Raw materials $ 7,725 $ 7,282
Work in process 407 275
Finished goods 41,122 47,384
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$49,254 $54,941
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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. The Company's net earnings generated by the
operations of its Puerto Rico subsidiary are exempt from Federal income
taxes under Section 936 of the Internal Revenue Code and substantially
exempt from Puerto Rico income taxes. Under Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes",
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.
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
week periods were 30,957,000 (1996) and 22,604,000 (1995) after giving
retroactive effect to the February 22, 1996 stock split.
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CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
5. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for the thirteen week period ended March 31, 1996 and March 26,
1995, respectively, included interest payments of $862,000 and $566,000 and
income taxes paid of $3,566,000 and $1,500,000.
Excluded from the investing activities in the Consolidated Statements of
Cash Flows are net transfers from inventory to property, plant and equipment
of $4,493,000 and $2,690,000 for the thirteen week periods ended March 31,
1996 and March 26, 1995 respectively, relating to equipment rented to
customers.
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/legal
useful lives, which range from five to ten years. Accumulated
amortization approximated $2,308,000 and $1,806,000 at March 31, 1996
and December 31, 1995, respectively.
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. Capitalized
software development costs, net of accumulated amortization, totaled
$1,834,000 and $1,519,000 as of March 31, 1996 and December 31, 1995,
respectively.
7. ACQUISITION
On March 21, 1996, the Company acquired Mercatec Sistemas e Comercio de
Equipamentos Electronicos Ltds.("Mercatec"). Mercatec is a leading supplier
of EAS systems and CCTV systems to retailers in Brazil with approximately
$3,000,000 in annual sales.
On November 30, 1995, the Company purchased all of the capital stock of
Actron Group Limited ("Actron") which is engaged in the manufacture,
distribution and sale of security products and services. The purchase price
of the capital stock was approximately $54,000,000. 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 approximately $40,600,000 which
is being amortized over thirty years.
In connection with the acquisition of Actron accruals of $10,401,000
were established to integrate Actron's operations with the Company's
existing sales and production locations. Included in this accrual are:
(i)costs associated with the elimination of approximately 70 manufacturing
and field service and selling and administrative positions from the Actron
operation (approximately $7.7 million), (ii) costs related to the closure of
redundant sales locations (approximately $1.8 million), and (iii) ancillary
costs (approximately $.9 million). During the first quarter of 1996,
approximately $614,000 of the ancillary costs and approximately $1,595,000
of the severance costs had been charged against the accrual. The remaining
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CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
7. ACQUISITION (continued)
portion of the accrual is included in the "Other Current Liabilities"
section of the Company's consolidated balance sheet. The integration of
Actron's operations is expected to be completed in the second quarter of
1996. Actual charges to complete the integration may differ from the
above estimates. Such differences will increase (decrease) the excess of
purchase price over net assets acquired.
The following table represents unaudited combined results of operations
for the first three months of 1996 (actual) and 1995 (as if the acquisition
of Actron had occurred at the beginning of fiscal year 1995). The following
results are not necessarily indicative of what would have occurred had the
acquisition been consummated as of that date or of future results:
Three Months (13 weeks) Ended
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March 31, March 26,
1996 1995
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(Thousands, except per share data)
Net revenues................................$ 66,994 $ 50,134
Net earnings................................$ 2,946 $ (1,302)
Earnings per common share...................$ .10 $ (.06)
8. 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.
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CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
9. SUBORDINATED CONVERTIBLE DEBENTURES
On April 19, 1996, the Company completed its Shelf Registration Statement
on Form S-3 covering the resale of $47,250,000 5.25% Convertible
Subordinated Debentures due 2005("Debentures") and 2,571,428 shares of the
Company's common stock, $.10 par value per share, issuable upon conversion
of the debentures. The Registration Statement also covered the registration
of 350,000 shares of the Company's Common Stock presently issuable upon
exercise of certain options granted by the Company.
10. RESTRUCTURING PLAN
In December 1995, as a result of the Actron acquisition, the Company
announced a restructuring plan to reorganize its workplace on an
international basis to eliminate redundancies. In connection with the
restructuring, which is in addition to the elimination of Actron positions
referred to in Note 7 above, approximately 28 manufacturing, field
service and general and administrative positions in the Company's
international operations were eliminated. The Company accrued
approximately $1.3 million before tax in the fourth quarter of 1995,
consisting of employment severance costs of $697,000, lease termination costs
of $359,000, and ancillary and miscellaneous costs of $244,000. During the
first quarter of 1996 approximately $699,000 of severance related payments
were charged against the accrual. The plan is anticipated to be completed in
the second quarter of 1996.
11. CONTINGENCIES
On February 14, 1996, the United States Federal Trade Commission ("FTC")
began an investigation of the retail security systems industry. The probe
was launched under the premise of anticompetitive practices within the
industry whereby certain retail-trade groups limited the autonomy of smaller
retailers by supporting specific security systems. The Company, along with
Sensormatic Electronics Corporation, Minnesota Mining and Manufacturing, and
other industry participants, received subpoenas requesting certain documents
and communications necessary for the investigation. The Company does not
believe that any legal or regulatory infraction will be found on its part.
12. SUBSEQUENT EVENT
Pursuant to the October 11, 1995 Purchase Agreement for Actron Group
Limited, the Company received a $2.5 million reduction to the $54 million
purchase price resulting from certain net asset representations contained in
the Agreement. This purchase price adjustment will reduce the excess of
purchase price over fair value of net assets acquired.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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First Quarter 1996 compared to First Quarter 1995
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Overview
During the first quarter of 1996 revenues increased by approximately $29.6
million (or 79.3%) over the first quarter of 1995. Cost of revenues were
higher than in the first quarter of 1995 as a percentage of sales (from 56.9%
to 59.0%). The increase in cost of revenues was primarily the result of sales
of Actron products which carry a lower gross margin. Selling, general and
administrative ("SG&A") expenses increased $7.7 million but declined as a
percentage of revenues by 6.0% (from 39.2% to 33.2%). Income from operations
increased $3.7 million (from $1.5 million to $5.2 million). Net earnings for
the first quarter of 1996 increased by $2.7 million (from $.2 million to $2.9
million) resulting in earnings per share of $.10 for the first quarter of 1996
versus $.01 achieved in last year's first quarter.
Net Revenues
Net revenues for the first quarter of 1996 increased approximately $29.6
million (or 79.3%) over the first quarter of 1995 (from $37.4 million to $67.0
million). Domestic and international net revenues accounted for approximately
44.8% and 55.2%, respectively, of total net revenues compared to 63.1% and
36.9% for last year's similar quarter. Domestic retail Electronic Article
Surveillance ("EAS") net revenues increased $6.1 million (or 41.4%) primarily
as a result of increased unit sales resulting from various chain wide
installations. International EAS net revenues increased $22.7 million (or
166.5%) primarily as a result of: higher unit sales volume generated by the
Company's operations in Europe ($17.4 million) which was positively impacted
by the Company's recent acquisition of Actron (approximately $12.0 million)
and increased sales to a major customer in Spain ($4.1 million). In addition,
the Company's Canadian operations realized a significant sales increase
($4.0 million). Sales of the Company's Alarmex and CCTV product lines
increased by 13.3% (from $6.4 million to $7.2 million) over the prior year's
quarter. The Company's Access Control product line had sales growth of 3.8%
(from $1.5 million to $1.6 million) compared to the prior year's first
quarter.
First Quarter 1996 compared to First Quarter 1995
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Cost of Revenues
Cost of revenues increased approximately $18.3 million (or 85.9 %) over the
first quarter of 1995 (from $21.3 million to $39.6 million). As a percentage
of net revenues, cost of revenues increased 2.1% (from 56.9% to 59.0%)
compared to the prior year's first quarter. This increase was primarily due
to the significant amount of Actron inventory which was sold by the Company
during the quarter which had been originally produced or purchased at a
greater cost than the Company's other EAS products. The Company is in the
process of closing Actron's high cost European manufacturing facility and
moving production to the Company's lower cost Caribbean based facilities. The
Company expects this relocation of production to be substantially complete by
the end of the second quarter.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (continued)
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Selling, General and Administrative Expenses
SG&A expenses increased $7.7 million (or 52.2%) over the first quarter of 1995
(from $14.6 million to $22.3 million). As a percentage of net revenues,
however, SG&A expenses decreased by 6.0% (from 39.2% to 33.2%). The higher
expenses (in dollars) were due to: (i) approximately $3.5 million increase in
variable selling costs to support the increase in revenues (ii) approximately
$3.5 million increase in general and administrative costs, and (iii)
approximately $.7 million related to the amortization of goodwill and
intangibles generated from the Actron acquisition.
Interest Expense
Interest expense for the first quarter of 1996 increased $1.2 million (from
$1.1 million to $2.3 million) primarily as a result of interest on the $120
million 5.25% convertible subordinated debentures issued in October of 1995.
Income Taxes
The effective tax rate of 32.0% is higher than the effective tax rate during
the first quarter of 1995 of 29.9%. This is primarily due to (i) higher
taxable income attributable to foreign jurisdictions where tax rates are
marginally higher than the U.S., and (ii) higher charges for amortization of
goodwill and intangibles resulting from the Actron acquisition which are not
tax deductible.
Net Earnings
Net earnings were $2.9 million or $.10 per share versus $.2 million or $.01
per share for the prior year's first quarter. The weighted average number of
common and common equivalent shares used in the earnings per share computation
(adjusted for the stock split of February 22, 1996) for the first quarter of
1996 has increased substantially compared to the prior year's quarter (from
22.6 million to 31.0 million) primarily due to (i) shares issued as part of
the Alarmex acquisition (401,434) and, (ii) shares issued during the second
quarter of 1995 in connection with the Company's secondary equity offering
(6,173,200). The balance of the increase was attributable to the exercise
of stock options and an increase in common stock equivalents (stock options
outstanding).
Exposure To International Operations
Approximately 73.7% of the Company's international sales during the first
quarter of 1996 were made in local currencies. Sales denominated in
currencies other than U.S. dollars increased the Company's potential exposure
to currency fluctuations which can affect results. During the first quarter
of 1996, currency exchange gains amounted to approximately $.5 million
compared to losses of $.3 million in the first quarter of 1995. Management
cannot predict with any degree of certainty the future impact that changes in
currency exchange rates will have on its operations.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (continued)
- ---------------------
First Quarter 1996 compared to First Quarter 1995
- --------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's liquidity needs have related to, and are expected to continue to
relate to, capital investments, acquisitions and working capital requirements.
The Company has met its liquidity needs over the last three years primarily
through funds provided by long-term borrowings and, in fiscal 1995, through
the issuance of common stock in an underwritten public offering and the
issuance of convertible subordinated debt.
Management continues to seek capital in order to support continuing worldwide
growth. In this regard the Company plans to file Form S-3 under the
Securities Act of 1933 relating to an offering by the Company of 3,500,000
shares (not including 525,000 shares subject to the underwriters'
over-allotment option) of the Company's common stock. The Company expects to
complete this offering during the second quarter of 1996. The net proceeds to
be received by the Company from this offering are expected to approximate $100
million (excluding the over-allotment option). The proceeds of the offering
are expected to be used for general corporate purposes including the
following: (i) for potential strategic acquisitions and related start-up
operations to enhance both product line diversification within the Company's
core business and distribution opportunities and alliances and (ii) to provide
the necessary capital to enable the Company to internally finance the leasing
of equipment to retailers under long-term leases.
The Company's operating activities during the first quarter of 1996 consumed
approximately $4.0 million compared to $7.6 million during the first quarter
of 1995. This use of cash was primarily the result of (i) an increase in long
term customer contracts made under the Company's comprehensive target program
and sales type leases, and (ii) payments made on accounts payable acquired as
part of the Actron transaction and restructuring costs that the Company
initiated as part of the integration of its European operations.
The Company's capital expenditures during the first quarter of 1996 totaled
$2.2 million compared to $2.3 million during the first quarter of 1995.
Notwithstanding the slight quarter to quarter reduction, the Company expects
to continue to make investments in property, plant and equipment at levels
higher than the last several years. These capital expenditures will generally
relate to expanding, improving and maintaining plant efficiency at the
Company's various production facilities located in the Caribbean and enhancing
distribution capabilities and efficiencies worldwide. As part of this
expansion the Company plans to increase the current annual production capacity
of disposable labels from 3 billion to 5 billion by the second half of 1997.
In addition, and as part of its continuing strategy to expand international
direct distribution, the Company is currently in the process of establishing
its own centralized Western European distribution center. Total capital
spending in 1996 is expected to approximate $14 million.
The Company exports products for international sales to its foreign
subsidiaries. The subsidiaries, in turn, sell these products to customers in
their respective geographic areas of operation, generally in local currencies.
This method of sale and resale gives rise to the risk of gains or losses as a
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
- -------------------------------------------
result of currency exchange rate fluctuations.
In order to reduce the Company's exposure resulting from currency fluctuations
the Company has been purchasing currency exchange forward contracts on a
regular basis. These contracts guarantee a predetermined exchange rate at the
time the contract is purchased. This allows the Company to shift the risk,
whether positive or negative, of currency fluctuations from the date of the
contract to a third party. As of March 31, 1996 the Company had currency
exchange forward contracts totaling approximately $11.7 million. The
contracts are in the various local currencies covering primarily the Company's
Western European operations along with the Company's Canadian operations. The
Company's operations in Argentina, Mexico, Australia and Brazil were not
covered by currency exchange forward contracts at March 31, 1996.
The Company is considering increasing the amount of currencies covered by
forward exchange contracts during fiscal 1996. In addition, the Company is
evaluating the use of currency options in order to reduce the impact that
exchange rate fluctuations have on the Company's gross margins for sales made
by the Company's international operations. The combination of forward
exchange contracts and currency options could limit the Company's risks
associated with significant exchange rate fluctuations. The Company had no
currency options outstanding as of March 31, 1996.
The Company has never paid a cash dividend and has no plans to do so in the
foreseeable future. Certain covenants in the Company's debt instruments
prohibit the amounts available for cash dividends.
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On February 14, 1996, the United States Federal Trade Commission ("FTC")
began an investigation of the retail security systems industry. The probe
was launched under the premise of anticompetitive practices within the
industry whereby certain retail-trade groups limited the autonomy of
smaller retailers by supporting specific security systems. The
Company, along with Sensormatic Electronics Corporation, Minnesota Mining
and Manufacturing, and other industry participants, received subpoenas
requesting certain documents and communications necessary for the
investigation. The Company does not believe that any legal or regulatory
infraction will be found on its part.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) An annual meeting of shareholders was held on April 23, 1996.
(c) Shareholders voted upon and approved the following matters:
(1) The election of Robert O. Aders and David W. Clark, Jr.
as the Company's Class II directors to hold office until the 1999
Annual Shareholders Meeting. Shareholders voted as follows:
Robert O. Aders David W. Clark, Jr.
--------------- -------------------
For 23,874,808 For 23,874,858
Withheld 111,353 Withheld 111,303
---------- ----------
Total 23,986,161 Total 23,986,161
========== ==========
(2) To Amend and Restate the Company's Employee Stock Purchase
Plan to increase the available Company contribution under the Plan.
For Against Abstained
---------- ------- ---------
23,602,120 238,839 145,202
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) During the Company's first quarter ended March 31, 1996, the Company
filed the following reports: (i) Form 8-K/A filed February 13, 1996;
(ii) Form 8-K/A filed on February 15, 1996, and (iii) Form 8-K/A filed
on February 20, 1996, all of which further amended the Company's Report
on Form 8-K filed on December 15, 1995 respecting the Company's
acquisition of all of the issued and outstanding capital stock of
Actron Group Limited.
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHECKPOINT SYSTEMS, INC.
Jeffrey A. Reinhold May 3, 1996
Vice President - Chief Financial
Officer and Treasurer
Mitchell T. Codkind May 3, 1996
Vice President, Corporate Controller
and Chief Accounting Officer
<PAGE>
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<NAME> CHECKPOINT SYSTEMS, INC.
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