<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
For the quarter ended March 29, 1998
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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
--- ---
As of May 4, 1998, there were 33,242,384 shares of the Common Stock
outstanding.
<PAGE> 2
<PAGE>
CHECKPOINT SYSTEMS, INC.
FORM 10-Q
INDEX
Page No.
--------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statement of Shareholders' Equity 4
Consolidated Statements of Comprehensive Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
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<PAGE> 2
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
March 29, Dec. 28,
1998 1997
--------- --------
ASSETS (Unaudited)
------ (Thousands)
CURRENT ASSETS
Cash and cash equivalents $ 56,686 $ 64,138
Accounts receivable, net of allowances
of $5,291,000 and $5,703,000 123,561 136,748
Inventories, net 85,491 77,631
Other current assets 12,790 13,570
Deferred income taxes 5,548 5,593
------- -------
Total current assets 284,076 297,680
REVENUE EQUIPMENT ON OPERATING LEASE, net 24,189 24,718
PROPERTY, PLANT AND EQUIPMENT, net 83,747 58,674
EXCESS OF PURCHASE PRICE OVER FAIR VALUE
OF NET ASSETS ACQUIRED, NET 75,028 72,304
INTANGIBLES, NET 13,410 14,003
OTHER ASSETS 54,172 49,055
------- -------
TOTAL ASSETS $534,622 $516,434
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Short-term borrowings and current portion
of long-term debt $ 7,008 $ 6,957
Accounts payable 14,625 13,200
Accrued compensation and related taxes 6,550 7,745
Income taxes 12,001 13,687
Unearned revenues 12,952 11,413
Other current liabilities 31,281 33,108
------- -------
Total current liabilities 84,417 86,110
LONG-TERM DEBT, LESS CURRENT MATURITIES 48,985 30,855
CONVERTIBLE SUBORDINATED DEBENTURES 120,000 120,000
DEFERRED INCOME TAXES 875 1,458
MINORITY INTEREST 432 461
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred Stock, no par value, authorized
500,000 shares, none issued - -
Common Stock, par value $.10 per share,
authorized 100,000,000 shares, issued
36,407,584 and 36,338,228 3,645 3,633
Additional capital 232,709 232,079
Retained earnings 88,146 86,873
Common stock in treasury, at cost,
3,188,700 shares (27,986) (27,986)
Accumulated other comprehensive income (16,601) (17,049)
------ -------
TOTAL SHAREHOLDERS' EQUITY 279,913 277,550
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $534,622 $516,434
======= =======
See accompanying notes to Consolidated Financial Statements.
-2-
<PAGE> 3
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Quarter (13 Weeks) Ended
------------------------
March 29, March 30,
1998 1997
--------- ---------
(Thousands, except per share data)
Net Revenues $79,857 $68,178
Cost of Revenues 48,302 40,141
------ ------
Gross Profit 31,555 28,037
Selling, General
and Administrative
Expenses 28,639 26,697
------ ------
Income from operations 2,916 1,340
Interest Income 1,159 2,831
Interest Expense 2,421 2,449
Other Income, net 189 1,888
----- ------
Income Before
Income Taxes 1,843 3,610
Income Taxes 599 1,175
Minority Interest 29
------ ------
Net Earnings $ 1,273 $ 2,435
====== ======
Net Earnings Per Share
Basic $ .04 $ .07
======= =======
Diluted $ .04 $ .07
======= =======
See accompanying notes to consolidated financial statements.
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<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
Three Months(13 Weeks) Ended March 29,1998
--------------------------------------------------
Foreign
Currency
Common Additional Retained Adjust- Treasury
Stock Capital Earnings ments Stock Total
------- ---------- -------- -------- -------- -----
(Thousands)
Balance,
December 28,
1997 $ 3,633 $232,079 $86,873 $(17,049) $(27,986) $277,550
Net Earnings 1,273 1,273
Exercise of Stock
Options 12 630 642
Other Comprehensive
Income 448 448
------ -------- ------- ------- ------- -------
Balance at
March 29,1998 $ 3,645 $232,709 $88,146 $(16,601) $(27,986) $279,913
======= ======== ======= ======= ======== ========
See accompanying notes to Consolidated Financial Statements.
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
Three Months(13 Weeks) Ended March 29,1998
------------------------------------------
(Thousands)
Net Earnings $1,273
Other Comprehensive Income
Foreign Currency Translation
Adjustments 448
------
Other Comprehensive Income 448
------
Comprehensive Income $1,761
======
See accompanying notes to Consolidated Financial Statements.
-4-
<PAGE> 5<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months(13 Weeks) Ended
--------------------------
March 29, March 30,
1998 1997
--------- --------
(Thousands)
Cash inflow (outflow) from operating activities:
Net earnings $ 1,273 $ 2,435
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Net book value of rented equipment sold 22 265
Revenue Equipment placed under Operating Lease (1,608) (4,259)
Long-term customer contracts (5,983) (1,763)
Depreciation and amortization 6,528 3,840
Provision for losses on accounts receivable 385 215
(Increase) decrease in current assets:
Accounts receivable 13,429 (1,868)
Inventories (6,026) (1,349)
Other current assets 925 (5,036)
Increase (decrease) in current liabilities:
Accounts payable 1,399 (3,780)
Accrued compensation and related taxes (1,205) (1,930)
Income taxes (2,247) 1,181
Unearned revenues 1,001 1,771
Other current liabilities (2,689) 2,473
------- -------
Net cash provided/(used)by
Operating activities 5,204 (7,805)
------- -------
Cash inflow (outflow) from investing activities:
Acquisition of property, plant and equipment (5,618) (5,046)
Acquisition, net of cash acquired (25,981) (1,820)
Other investing activities (403) (2,184)
------- -------
Net cash used by investing activities (32,002) (9,050)
------- -------
Cash inflow (outflow) from financing activities:
Proceeds from stock options 642 417
Proceeds from debt 19,541 2,947
Payment of debt (837) (3,499)
------- -------
Net cash provided (used) by
financing activities 19,346 (135)
------- -------
Net increase (decrease) in cash and cash
equivalents (7,452) (16,990)
Cash and cash equivalents:
Beginning of period 64,138 185,836
------- -------
End of period $ 56,686 $168,846
======= =======
See accompanying notes to consolidated financial statements.
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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 majority-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
28, 1997 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 29, 1998 and December 28, 1997 and its results
of operations and changes in cash flows for the thirteen week periods ended
March 29, 1998 and March 30, 1997.
2. INVENTORIES
March 29, December 28,
1998 1997
---------- ------------
(Thousands)
Raw materials $11,175 $10,329
Work in process 2,746 2,312
Finished goods 71,570 64,990
------- -------
$85,491 $77,631
======= =======
Inventories are stated at the lower of cost (first-in, first-out method)
or market. Cost includes material, labor and applicable overhead.
3. LONG TERM CUSTOMER CONTRACTS
Included in Other Assets are unbilled receivables and other assets relating to
long term customer contracts generated primarily from the leasing of the
Company's EAS equipment to retailers under long-term sales-type leasing
arrangements (referred to by management as the Comprehensive Tag ProgramTM).
The duration of these programs typically range from three to five years.
4. 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 (as amended under the
Small Business Job Protection Act of 1996) and substantially exempt from
Puerto Rico income taxes. Under current law, this exemption from Federal
income tax will remain in effect through 2001, will be subject to certain
limits during the years 2002 through 2005, and will be eliminated
thereafter. 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.
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CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
5. PER SHARE DATA
The following data shows the amounts used in computing earnings per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock:
Quarter (13 weeks) Ended
March 29, March 30,
1998 1997
--------- ---------
(In thousands, except per
share amounts)
BASIC EARNINGS PER SHARE:
Net Income $ 1,273 $ 2,435
======== ========
Average Common Stock Outstanding 33,194 34,560
Basic earnings per share $ .04 $ .07
======== ========
DILUTED EARNINGS PER SHARE:
Net income available for Common
Stock dilutive securties(1) $ 1,273 $ 2,435
======== ========
Average Common Stock Outstanding 33,194 34,560
Additional common shares
resulting from Stock Options 1,403 1,548
-------- --------
Average Common Stock and
Dilutive stock outstanding(1) 34,597 36,108
======== ========
Dilutive earnings per share $ .04 $ .07
======== ========
(1) Conversion of the subordinated debentures is not included in the above
calculation as the conversion price is anti-dilutive.
6. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for the thirteen periods ended March 29, 1998, and March 30,
1997, respectively, included interest payments of $931,000 (1998) and $876,000
1997)and income taxes paid of $2,707,000 (1998) and $496,000 (1997).
7. RESTRUCTURING CHARGE
In December 1997, the Company recorded a pre-tax restructuring charge of
$9,000,000. This charge, relating directly to the Company's international
operations, includes (i) the elimination of approximately 60 positions
($5,450,000); (ii) the lease terminations of six of the Company's sales
facilities and the consolidation of the Company's European research and
development center to the corporate headquarters ($1,500,000); (iii) the costs
associated with the termination of two master reseller agreements in Asia and
Southern Europe ($1,550,000); and (iv) costs associated with the consolidation
of inventory to the European distribution center ($500,000). At March 29,
1998, $6,982,000 of restructuring remains in Other Current Liabilities. The
restructuring activity is expected to be substantially complete prior to the
end of 1998.
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CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
8. ACQUISITIONS
On February 2, 1998, the Company acquired the assets of Tokai Electronics Co.,
Ltd., a Japanese manufacturer of radio frequency tags, for approximately $27
million. The Company had held a one-third interest in Tokai since 1995.
9. COMPREHENSIVE INCOME
The Company adopted provisions of SFAS No. 130, "Reporting Comprehensive
Income", in the first quarter of 1998. The provisions of SFAS No. 130
establish standards for reporting and display of comprehensive income and its
components in the financial statements. This statement mandates that all
items required to be recognized under accounting standards as components of
comprehensive income, be reported in the financial statements and displayed
with the same prominence as the other financial statements.
10. STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The provisions of SFAS No. 131 establish
standards for the way that enterprises report information about operating
segments in annual financial statements and require that selected information
about operating segments in interim financial statements being reported. It
also establishes standards for related disclosure about products and services,
geographic areas, and major customers. The Company is reviewing this standard
of disclosure for adoption in the 1998 annual report.
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CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This report may include information that could constitute forward-looking
statements made pursuant to the safe harbor provision of the Private
Securities Litigation Reform Act of 1995. Any such forward-looking statements
may involve risk and uncertainties that could cause actual results to differ
materially from any future results encompassed within forward-looking
statements.
RESULTS OF OPERATIONS
- ---------------------
First Quarter 1998 Compared to First Quarter 1997
- ------------------------------------------------------------
Overview
During the first quarter of 1998, revenues increased by approximately $11.7
million (or 17.1%) over the first quarter of 1997. The increase in revenues
was due primarily to increased sales of the Company's Electronic Article
Surveillance ("EAS")and CCTV/Fire and Burglar product lines within the
domestic retail markets and to a lesser extent the increased sales of
CCTV/Fire and Burglar products in the international markets. Cost of revenues
increased by 1.6% compared to last year's first quarter as a percentage of
sales (from 58.9% to 60.5%). Selling, general and administrative ("SG&A")
expenses increased $1.9 million but decreased as a percentage of revenues by
3.3% (from 39.2% to 35.9%). Income from operations increased $1.6 million
(from $1.3 million to $2.9 million). Net earnings for the first quarter of
1998 decreased $1.1 million (from $2.4 million to $1.3 million) due to
reductions in both other income and interest income. Earnings per share were
$.04 for the first quarter of 1998 versus $.07 achieved in the first quarter
of 1997.
Net Revenues
Net revenues for the first quarter of 1998 increased $11.7 million (or 17.1%)
over the first quarter of 1997 (from $68.2 million to $79.9 million). North
American (the United States and Canada) and International net revenues
accounted for approximately 58.8% and 41.2%, respectively, of total net
revenues compared to 52.9% and 47.1% for last year's similar quarter. North
American EAS net revenues increased by $5.9 million (or 24.3%). International
EAS net revenues decreased $1.0 million (or 3.0%). The decline in
international EAS net revenues is primarily a result of the strengthening of
the U.S. dollar against foreign currencies when compared to the first quarter
of 1997. Sales of the Company's Worldwide CCTV/Fire and Burglar products
increased $5.8 million or 59.2% (from $9.8 million to $15.6 million) over the
prior year's quarter. This growth was primarily a result of an increase in
revenues associated with the sales of the Company's North American CCTV/Fire
and Burglar products, and to a lesser extent, from the revenues resulting from
the acquisitions made in 1997. The Company's Access Control product line had
sales growth of 33.3% (from $2.4 million to $3.2 million) compared to the
prior year's first quarter.
Cost of Revenues
Cost of revenues increased approximately $8.2 million (or 20.4%) over the
first quarter of 1997 (from $40.1 million to $48.3 million). As a percentage
of net revenues, cost of revenues increased 1.6% (from 58.9% to 60.5%). The
increase in the Company's cost of sales is primarily attributable to: (i) an
increase in Research and Development activities associated with the
development of RF-EAS/ID Products, (ii) the increase in sales of CCTV/Fire
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<PAGE> 10<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
and Burglar products which result in higher product costs when compared
to the Company's EAS products and (iii) the costs associated with excess
capacity in the Puerto Rico manufacturing facility resulting from the recent
expansion.
Selling, General and Administrative Expenses
SG&A expenses increased $1.9 million (or 7.2%) over the first quarter of
1997 (from $26.7 million to $28.6 million). As a percentage of net revenues,
SG&A expenses decreased by 3.3% (from 39.2% to 35.9%). The higher expenses
(in dollars) were due to: (i)approximately $1.6 million in increased selling,
marketing and customer service costs to support existing and future revenues,
and (ii) approximately $1.8 million in increased general and administrative
costs. During the first quarter of 1997, the Company incurred approximately
$1.5 million in non-recurring costs associated with the terminated Ultrak
merger.
Other Income, net
Other income, net for the first quarter of 1998 decreased by $1.7 million over
the first quarter of 1997. Other income, net for the first quarter of 1998
represented a net foreign exchange gain of $0.2 million. Other income, net of
$1.9 million for the first quarter of 1997 includes: (i) a payment of $1.3
million from Mitsubishi Materials Corporation in connection with the
establishment of a joint product research and development project; (ii) an
insurance claim of $1.0 million relating to the loss of business income caused
by a fire at the Company's warehouse facility in France; and (iii) a net
foreign exchange loss of $0.4 million.
Interest Expense and Interest Income
Interest expense for the first quarter of 1998 remained constant at
approximately $2.4 million. Interest income for the first quarter 1998
decreased by $1.6 million from the comparable quarter in 1997 (from $2.8
million to $1.2 million) resulting from a direct reduction in cash and cash
investments primarily related to (i) the net cash used in operations for the
remainder of 1997 and the first quarter of 1998, (ii) the cost of expanding
the Company's manufacturing facility in Ponce, Puerto Rico during 1997, (iii)
the purchase of Treasury stock in 1997, and (iv) the acquisition of the assets
of Tokai Electronics Co., Ltd., in February 1998.
Income Taxes
The effective tax rate of 32.5% is the same as the effective tax rate during
the first quarter of 1997.
Net Earnings
Net earnings for the current quarter were $1.3 million or $.04 per share
versus $2.4 million or $.07 per share for the prior year's first quarter.
Exposure to International Operations
Approximately 97% of the Company's international sales during the first
quarter of 1998 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. Management cannot predict,
-10-
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CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
with any degree of certainty, changes in currency exchange rates and
therefore, the future impact that such changes may have on its operations.
Year 2000
The Company's management believes that its major financial and manufacturing
applications are year 2000 complaint. The Company expects no material impact
on its internal information systems from the year 2000 issue. The Company has
recently initiated communications with its significant suppliers to determine
the extent that the Company may be impacted by third parties' failure to
address the issue. The Company will continue to monitor and evaluate the
impact of the year 2000 on its operations.
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, the issuance
of convertible subordinated debt, and through two separate issuances of
Common Stock in underwritten public offerings.
The Company's operating activities during the first three months of 1998
generated approximately $5.2 million compared to $7.8 million consumed during
the first three months of 1997. This change from prior year was primarily the
result of a decrease in accounts receivable offset primarily by increases in
inventory levels and the Company's continued investment in the Comprehensive
Tag Program which provides equipment financing to retail customers utilizing
the Company's EAS systems in exchange for a multi-year agreement to purchase
disposable labels.
The Company's Comprehensive Tag ProgramTM ("Comp Tag") is a financial
marketing/sales tool designed to remove capital investment costs as an
obstacle to the potential customer's decision to purchase an EAS system.
Through the Comp Tag Program, the Company internally finances the leasing of
equipment to retailers under long-term non-cancelable contracts, usually three
to five years. Customers pay a premium price for an agreed-upon minimum
number of tags shipped on a quarterly or other periodic basis. The
comprehensive tag price reflects the cost of hardware, disposable RF labels,
installation and interest.
Comp Tag agreements which meet all the necessary requirements for sales-type
leasing as defined under FAS 13, are recognized as a sale upon shipment of the
EAS hardware. If the terms and conditions as specified in the Comp Tag
agreement do not meet all the necessary requirements for sales-type lease
accounting, then the agreement is accounted for as an operating lease. The
cash flow impact is independent of the accounting principle used for the
income statement. In the majority of cases, the Company is able to recover
equipment and installation costs between 18-24 months under the five-year
contract and within a shorter period of time for contracts which run three or
four years. The impact of the Comp Tag agreement is reflected on the
statement of cash flows under two captions: (i)Long-term customer contracts
for those meeting sales-type lease accounting; or (ii)Revenue equipment placed
under operating lease. Comp Tag contracts under the sales-type lease
accounting method are included in Other Assets on the Consolidated Balance
-11-
<PAGE> 12<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
- -------------------------------------------
Sheets. Comp Tag contracts under the operating-lease accounting method are
included in Revenue Equipment on Operating Lease on the Consolidated Balance
Sheets.
In summary, the Company's management has determined that the risks of the Comp
Tag Program (i.e. cash outlay, credit risk, equipment and tag monitoring
costs) are outweighed by the creation of long term disposable tag commitments
and the benefits realized by the acceleration of chain-wide installations.
Chain wide installations drive market share and faster acceptance of source
tagging by manufacturers.
The Company's capital expenditures during the first three months of 1998
totaled $5.6 million compared to $5.0 million during the first three months
of 1997. For fiscal year 1998 the Company anticipates that its capital
expenditure requirements will approximate $13 million.
In December 1997, the Company replaced its existing $60 million revolving
credit facility with a $100 million multi-currency unsecured revolving credit
facility. At March 29, 1998, $19.5 million was outstanding under this credit
agreement. These borrowings along with approximately $8 million from cash on
hand were utilized to acquire the assets of Tokai Electronics Co., Ltd., a
Japanese manufacturer of radio frequency tags, for approximately $27 million.
The Company had held a one-third interest in Tokai since 1995.
Management believes that its anticipated cash needs for the forseeable
future can be funded from cash and cash equivalents on hand and the unused
portion of the $100 million bank line of credit.
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 sales and resale gives rise to the risk of gains
or losses as a result of currency exchange rate fluctuations.
In order to reduce the Company's exposure resulting from currency
fluctuations, the Company has been selectively 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 29, 1998, the Company had currency exchange forward contracts
totaling approximately $39.4 million. The contracts are in the various local
currencies covering primarily the Company's Western European operations along
with the Company's Australian operations. The Company's operations in
Argentina, Brazil, Canada, Japan, and Mexico were not covered by currency
exchange forward contracts at March 29, 1998.
The Company has never paid a cash dividend (except for a nominal cash
distribution in April 1997, to redeem the rights outstanding under the
Company's 1998 Shareholders' Rights Plan). The Company does not anticipate
paying any cash dividend in the near future and is limited by existing
covenants in the Company's debt instruments to the amount of dividends which
may be paid.
-12-
<PAGE> 13<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
On February 18, 1998, the Registrant filed a Current Report on Form 8-K
reporting under:
Item 2 thereof that (i) on February 3, 1998, the Registrant consummated an
Agreement to purchase the operating assets and business of Tokai Electronics
Co. Ltd; and (ii) on February 10, 1998 the Registrant issued a press release
announcing the completion of aforesaid agreement; and
Item 5 thereof that (i) on January 29, 1998, the Registrant issued a press
release announcing its preliminary fourth quarter and year-end results, new
contracts and a new $100 million unsecured credit facility; and (ii) the
Company issued a press release on February 10, 1998 announcing its fourth
quarter and year-end results.
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.
/s/Jeffrey A. Reinhold
- ----------------------- May 13, 1998
Vice President - Finance,
Chief Financial Officer and Treasurer
W. Craig Burns
- ------------------------ May 13, 1998
Vice President, Corporate Controller
and Chief Accounting Officer
-13-
<PAGE> 14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000215419
<NAME> CHECKPOINT SYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-END> MAR-29-1998
<CASH> 56,686
<SECURITIES> 0
<RECEIVABLES> 123,561
<ALLOWANCES> 5,291
<INVENTORY> 85,491
<CURRENT-ASSETS> 284,076
<PP&E> 166,315
<DEPRECIATION> 58,380
<TOTAL-ASSETS> 534,622
<CURRENT-LIABILITIES> 84,417
<BONDS> 0
0
0
<COMMON> 3,645
<OTHER-SE> 276,268
<TOTAL-LIABILITY-AND-EQUITY> 534,622
<SALES> 79,857
<TOTAL-REVENUES> 79,857
<CGS> 48,302
<TOTAL-COSTS> 28,639
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</TABLE>
