SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 10, 1999
Checkpoint Systems, Inc.
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(Exact name of registrant as specified in its charter)
Pennsylvania
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(State or other jurisdiction of incorporation or organization)
1-11257 22-1895850
- - ------------------------- ---------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
101 Wolf Drive P.O. Box 188 Thorofare, New Jersey 08086
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(Address of principal executive offices)
(856) 848-1800
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(Registrant's telephone number, including area code)
N/A
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(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 pro forma financial information, relating to the
acquisition by Checkpoint Systems, Inc. (the "Registrant") of 98.57% of the
outstanding shares of Meto AG pursuant to a cash tender offer. Such transaction
is more fully described in the Current Report on Form 8-K filed by the
Registrant on December 27, 1999.
<PAGE>
Item 7(a) Financial Statements of Business Acquired
Index To Financial Statements
METO AG FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders Equity
Consolidated Statements of Cash Flows
Consolidated Financial Statements
<PAGE>
Item 7(b) Pro Forma Consolidated Financial Information
- Unaudited Pro Forma Financial Statements - Basis of Presentation
- Unaudited Pro Forma Balance Sheet
- Unaudited Pro Forma Statement of Operations
- Notes to Unaudited Pro Forma Financial Statements
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
METO, AG:
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 10, 1999 and
December 31, 1998 F-3
Consolidated Statements of Operations for the period from January 1, 1999 to
December 10, 1999 and for the year ended December 31, 1998 F-4
Consolidated Statements of Comprehensive Income for the period from January 1, 1999
to December 10, 1999 and for the year ended
December 31, 1998 F-5
Consolidated Statements of Stockholders' Equity for the period from January 1, 1999
to December 10, 1999 and for the year ended
December 31, 1998 F-6
Consolidated Statements of Cash Flows for the period from January 1, 1999 to
December 10, 1999 and for the year ended December 31, 1998 F-7
Notes to Consolidated Financial Statements F-8
CHECKPOINT SYSTEMS, INC.:
Unaudited Pro Forma Financial Statements -- Basis of Presentation F-25
Unaudited Pro Forma Balance Sheet as of September 26, 1999 F-26
Unaudited Pro Forma Statement of Operations for the Nine
Months (39 weeks) Ended September 26, 1999 F-27
Unaudited Pro Forma Statement of Operations for the
Year (52 weeks) Ended December 27, 1998 F-28
Notes to Unaudited Pro Forma Financial Statements F-29
</TABLE>
<PAGE>
Report of Independent Accountants
To Meto AG:
We have audited the accompanying consolidated balance sheets of Meto AG,
formerly Meto Holding GmbH, and prior to June 14, 1999, the carved-out portion
of Meto Holding GmbH, a wholly owned subsidiary of Esselte AB, combined with
certain other Esselte AB businesses (see Note 1) and subsidiaries as of December
10, 1999 and December 31, 1998, and the related consolidated statements of
operations, comprehensive income, stockholders' equity and cash flows for the
periods then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Germany which, as applied by us, are substantially the same as those followed
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Meto AG
and subsidiaries (see Note 1) as of December 10, 1999 and December 31, 1998 and
the results of their operations and their cash flows for the periods then ended,
in conformity with generally accepted accounting principles in the United
States.
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
Gunter Nahs Lutz Frey
Wirtschaftsprufer Wirtschaftsprufer
(Authorised Public Accountant) (Authorised Public Accountant)
Eschborn / Frankfurt am Main
February 10, 2000
<PAGE>
METO AG AND SUBSIDIARIES (SEE NOTE 1)
CONSOLIDATED BALANCE SHEETS
(In thousands of Euros, except share information)
<TABLE>
<CAPTION>
December 10, 1999 (1) December 31, 1998 (2)
---------------------- ----------------------
(EUR 000) (EUR 000)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 32,316 16,001
Accounts receivable, net of allowances of
EUR 4,531 and EUR 4,260 70,854 61,904
Inventories 39,889 38,226
Other current assets 9,736 5,781
Deferred income taxes 1,211 1,777
---------------------- ----------------------
Total current assets 154,006 123,689
Property, plant and equipment, net 47,200 43,144
Goodwill, net 7,431 8,895
Intangible assets, net 6,385 2,152
Deferred income taxes 7,282 7,842
Other long-term assets 4,344 7,106
---------------------- ----------------------
226,648 192,828
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current
portion of long-term debt 32,629 10,801
Accounts payable 18,944 12,804
Accrued expenses 49,012 40,437
Accrued income taxes 25,100 17,820
Due to Esselte AB -- 33,724
Total current liabilities 125,685 115,586
Long-term debt 19,329 330
Pension liabilities 46,400 46,877
Deferred income taxes 216 360
---------------------- ----------------------
Total liabilities 191,630 163,153
---------------------- ----------------------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY:
Capital stock, no par value, 34,239,628 shares issued
and outstanding at December 10, 1999 - -
Additional paid-in capital 29,675 -
Esselte AB's equity in Meto operations - 29,675
Retained earnings 2,443 -
Currency translation adjustment 2,900 -
---------------------- ---------------------
Total stockholders' equity 35,018 29,675
---------------------- ---------------------
226,648 192,828
====================== ======================
</TABLE>
(1) The U.S. dollar exchange rate on December 10, 1999 was EUR 0.98213 to
$1.00.
(2) The 1998 financial statements have been restated to reflect the retroactive
applications of the Euro as the functional currency based on the January 1,
1999 exchange rate of EUR 0.51129 to DM 1.00.
The accompanying notes are an integral part of these statements.
<PAGE>
METO AG AND SUBSIDIARIES (SEE NOTE 1)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of Euros, except per share amounts)
<TABLE>
<CAPTION>
Period From
January 1, 1999 to Year Ended
December 10, 1999 (1) December 31, 1998 (2)
---------------------- -----------------------
(EUR 000) (EUR 000)
<S> <C> <C>
Net revenues 343,322 344,634
Cost of revenues 200,124 194,881
----------------------- -----------------------
Gross profit 143,198 149,753
Selling, general and
administrative expenses 126,547 124,203
----------------------- -----------------------
Operating income 16,651 25,550
Interest expense, net 2,484 1,327
----------------------- -----------------------
Income before income taxes 14,167 24,223
Income tax provision 11,731 9,219
Minority interest 7 --
----------------------- ----------------------
Net income 2,443 15,004
======================= =======================
Net income per share 0.07 0.44
======================= =======================
</TABLE>
(1) The U.S. dollar exchange rate on December 10, 1999 was EUR 0.98213 to
$1.00.
(2) The 1998 financial statements have been restated to reflect the retroactive
applications of the Euro as the functional currency based on the January 1,
1999 exchange rate of EUR 0.51129 to DM 1.00.
The accompanying notes are an integral part of these statements.
<PAGE>
METO AG AND SUBSIDIARIES (SEE NOTE 1)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of Euros)
<TABLE>
<CAPTION>
Period From
January 1, 1999 to Year Ended
December 10, 1999 (1) December 31, 1998 (2)
--------------------- ----------------------
(EUR 000) (EUR 000)
<S> <C> <C>
Net income 2,443 15,004
Currency translation adjustment, net
of tax 2,900 --
----------------------- ----------------------
Comprehensive income 5,343 15,004
======================= ======================
</TABLE>
(1) The U.S. dollar exchange rate on December 10, 1999 was EUR 0.98213 to
$1.00.
(1) The 1998 financial statements have been restated to reflect the retroactive
applications of the Euro as the functional currency based on the January 1,
1999 exchange rate of EUR 0.51129 to DM 1.00.
The accompanying notes are an integral part of these statements.
<PAGE>
METO AG AND SUBSIDIARIES (SEE NOTE 1)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands of Euros, except share amounts)
<TABLE>
<CAPTION>
Esselte AB's
Additional Equity in Currency
Capital Stock Paid-in Meto Retained Translation
-------------------------
Shares Amount Capital Operations Earnings Adjustment Total
----------- ------------ ------------ ------------ ----------- ---------- ---------
(EUR 000)(2) (EUR 000)(2) (EUR 000)(2) (EUR 000)(2) (EUR 000)(2) (EUR 000)(2)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1997 -- -- -- 14,671 -- -- 14,671
Net income -- -- -- 15,004 -- -- 15,004
---------- ---------- ---------- ---------- ---------- ---------- ---------
BALANCE,
DECEMBER 31, 1998 -- -- -- 29,675 -- -- 29,675
Spin-off and
reorganization of
Meto AG 34,239,628 -- 29,675 (29,675) -- -- --
Net income -- -- -- -- 2,443 -- 2,443
Currency translation
adjustment -- -- -- -- -- 2,900 2,900
---------- ---------- ---------- ---------- ---------- ---------- ---------
BALANCE,
DECEMBER 10, 1999 (1) 34,239,628 -- 29,675 -- 2,443 2,900 35,018
========== ========== ========== ========== ========== ========== =========
</TABLE>
(1) The U. S. dollar exchange rate on December 10, 1999 was EUR 0.98213 to
$1.00.
(2) The 1998 financial statements have been restated to reflect the retroactive
applications of the Euro as the functional currency based on the January 1,
1999 exchange rate of EUR 0.51129 to DM 1.00.
The accompanying notes are an integral part of these statements.
<PAGE>
METO AG AND SUBSIDIARIES (SEE NOTE 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Euros)
<TABLE>
<CAPTION>
Period From
January 1, 1999 to
December 10, 1999 (1) Year Ended December 31, 1998 (2)
------------------------ --------------------------------
(EUR 000) (EUR 000)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income 2,443 15,004
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 16,028 11,304
Deferred income taxes 982 --
Provision for losses on accounts receivable 1,583 989
(Gain) loss on sale of property and equipment 69 (100)
Change in operating assets and liabilities--
Accounts receivable (6,495) (696)
Inventories (106) (200)
Other assets (1,108) --
Accounts payable 1,068 (100)
Accrued expenses 6,524 (100)
Accrued income taxes 7,056 --
Other liabilities 614 --
----------------------- ---------------------
Net cash provided by operating activities 28,658 26,101
----------------------- ----------------------
INVESTING ACTIVITIES:
Purchases of property and equipment (16,593) (9,200)
Proceeds from sales of property and equipment 757 400
Business acquisitions, net of cash acquired (3,610) (1,300)
----------------------- ----------------------
Net cash used in investing activities (19,446) (10,100)
----------------------- ----------------------
FINANCING ACTIVITIES:
Net repayments of advances from Esselte AB (33,724) --
Net proceeds from short-term borrowings
and long-term debt 40,827 --
----------------------- ---------------------
Net cash provided by financing activities 7,103 --
----------------------- ---------------------
Net increase in cash and cash equivalents 16,315 16,001
Cash and cash equivalents, beginning of period 16,001 --
----------------------- ---------------------
Cash and cash equivalents, end of period 32,316 16,001
======================= ======================
</TABLE>
(1) The U.S. dollar exchange rate on December 10, 1999 was EUR 0.98213 to
$1.00.
(2) The 1998 financial statements have been restated to reflect the retroactive
applications of the Euro as the functional currency based on the January 1,
1999 exchange rate of EUR 0.51129 to DM 1.00.
The accompanying notes are an integral part of these statements.
<PAGE>
METO AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND, ORGANIZATON AND BASIS OF PRESENTATION:
Meto AG is an international provider of value-added labeling solutions for
article identification and security to improve customer sales and processes,
primarily in the retail sector and in the retail supply chain. Meto has four
principal products: Barcode Labeling Systems ("BCS"), which are automatic
identification systems primarily for use in the retail sector and retail-related
industries; Electronic Article Surveillance Systems ("EAS"), which are used by
retailers focused on consumable goods article surveillance; Hand-held Labeling
Systems ("HLS"), which are hand-held price marking systems used primarily by
retailers; and Retail Merchandising Systems ("RMS"), which are a range of
products, primarily for in-store retail promotion, display and other information
delivery purposes.
Meto AG, formerly Meto Holding GmbH, was a wholly-owned subsidiary of Esselte AB
through June 14, 1999, at which time all of the shares of Meto AG were
distributed proportionately to Esselte AB shareholders (the "spin-off"). In
preparing for the spin-off, during 1998 and early 1999, certain of Esselte's
business units that were complementary to Meto's operations were acquired by
Meto and certain of Meto's business units that were more strategically aligned
with Esselte's other business units were sold to Esselte. Following this
reorganization, Meto AG included only the Esselte subsidiaries and business
units associated with Meto's ongoing operations (the "Company").
Since Esselte was the sole stockholder of the Company, the reorganization
transactions have been accounted for as transfers between companies under common
control. Accordingly, the assets and liabilities associated with the
reorganization acquisitions and dispositions are reflected at carry-over basis.
The historical financial statements of the legal entity, Meto AG, are not
representative of the historical business of the Company. Therefore, the
accompanying consolidated financial statements include the carved-out operations
of the Company prior to the spin-off, and the operations of the legal entity,
Meto AG, subsequent to the spin-off. Prior to the spin-off, the Company's equity
has been reflected as Esselte AB's equity in Meto operations. In connection with
the spin-off and distribution of Meto AG no par value shares, Esselte AB's
equity in Meto operations was deemed a contribution to the Company, and the
balance of EUR 29,675,000 was transferred to additional paid-in capital.
<PAGE>
2. TENDER OFFER BY CHECKPOINT SYSTEMS, INC.:
On August 11, 1999, Checkpoint Systems, Inc. initiated a cash tender offer to
acquire all of the shares of Meto AG for SEK 65 per share, and on December 10,
1999, Checkpoint completed its acquisition of the Company. The accompanying
financial statements do not reflect any adjustments that may result from the
acquisition.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of Meto AG, its
majority owned subsidiaries and certain Esselte AB business units prior to the
spin-off. All material intercompany transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Revenue from the sale of products is recognized upon shipment. EAS hardware
revenue is recognized upon completion of the installation. Service revenue is
recognized on a straight-line basis over the contractual period or as services
are performed.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Cash and cash equivalents includes
EUR 19,557,000 and EUR 5,486,000 of short-term notes at December 10, 1999 and
December 31, 1998, respectively.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market value.
<PAGE>
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives. The estimated useful
lives are as follows:
Personal computers and software 3 years
Office equipment, furniture and vehicles 5 years
Machinery and equipment 5 - 10 years
Leasehold improvements Lease term or 10 years
Buildings 33 - 50 years
Depreciation expense for the period from January 1, 1999 to December 10, 1999
and for the year ended December 31, 1998 was EUR 9,047,000 and EUR 8,747,000,
respectively.
Goodwill
Goodwill resulted from the Company's acquisitions of businesses outside the
Esselte/Meto group and is being amortized over periods ranging from 3 to 20
years. As of December 10, 1999 and December 31, 1998, accumulated amortization
was EUR 5,500,000 and EUR 10,329,000, respectively. Amortization expense for the
period from January 1, 1999 to December 10, 1999 and for the year ended December
31, 1998, was EUR 5,135,000 (including an impairment charge of EUR 3,615,000)
and EUR 1,782,000, respectively.
Intangible Assets
Intangible assets consist primarily of acquired patent rights and license
agreements, which are amortized over the life of the patent or over the term of
the agreement (5 to 17 years) using the straight-line method. Accumulated
amortization was EUR 6,816,000 and EUR 5,091,000 at December 10, 1999 and
December 31, 1998, respectively. Amortization expense was EUR 1,846,000 and EUR
775,000 for the period from January 1, 1999 to December 10, 1999 and for the
year ended December 31, 1998, respectively.
Long-Lived Assets
The Company continually evaluates whether events and circumstances have occurred
that indicate that the carrying amount of a long-lived asset may not be
recoverable. If factors indicate that a long-lived asset, including goodwill,
should be evaluated for possible impairment, the Company uses an estimate of the
related undiscounted future cash flows to determine if an impairment has
occurred. In 1999, the Company wrote-off impaired goodwill totaling EUR
3,615,000 to reflect the estimated fair value at December 10, 1999.
<PAGE>
Investments in Affiliates
The Company has investments in affiliates accounted for using the cost method
and the equity method. Income and losses of equity method affiliates are
recognized based on the Company's ownership percentage. In 1999, the Company
wrote off investments and loans amounting to EUR 1,093,000 where permanent
impairment has occurred. The carrying value of investments in affiliates is EUR
20,000 at December 10, 1999.
Income Taxes
Income taxes are determined in accordance with SFAS No. 109. Under this method,
deferred tax liabilities and assets are determined based on the difference
between financial statement and tax basis of assets and liabilities using
enacted statutory tax rates in effect at the balance sheet date. Changes in
enacted tax rates are reflected in the tax provision as they occur. A valuation
allowance is recorded to reduce deferred tax assets when realization of a tax
benefit is less likely than not.
Accrued Warranty Obligation
The Company provides warranties on its products that vary by country. Product
warranties generally range from three months to five years and the Company
provides for its warranty obligation upon the sale of its products. Warranty
expense was EUR 629,000 and EUR 584,000 for the period from January 1, 1999 to
December 10, 1999 and for the year ended December 31, 1998, respectively. The
Company's accrued warranty obligation totaled EUR 2,053,000 and EUR 2,053,000 at
December 10, 1999 and December 31, 1998, respectively. The accrued warranty
obligation is provided for future product warranty claims based on management
estimates. These estimates are based on historical information along with
certain assumptions about future events, which could change.
Research and Development Costs
Research and development costs are expensed as incurred, and approximated EUR
2,977,000 and EUR 3,263,000 for the period from January 1, 1999 to December 10,
1999 and for the year ended December 31, 1998, respectively.
Advertising Costs
The Company expenses advertising costs as incurred. For the period from January
1, 1999 to December 31, 1999 and for the year ended December 10, 1998,
advertising expense was EUR 5,245,000 and EUR 5,254,000, respectively.
<PAGE>
Net Income Per Share
The Company computes net income per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), and
SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS
128 and SAB 98, basic net income per common share ("Basic EPS") is computed by
dividing net income available to common stockholders by the weighted average
number of common shares outstanding. Diluted net income per common share
("Diluted EPS") is computed by dividing net income by the sum of the weighted
average number of common shares and the potentially dilutive common share
equivalents then outstanding. The Company does not have any potentially dilutive
common share equivalents outstanding. For periods prior to the spin-off, the
34,239,628 shares issued in the distribution are treated as outstanding for the
entire period.
Foreign Currency Translation and Transactions
The Company's balance sheet accounts of non-EU subsidiaries are translated into
Euros at the rate of exchange in effect at the balance sheet dates. Revenues,
costs and expenses of the Company's non-EU subsidiaries are translated into
Euros 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. Foreign currency transaction gains and losses are included
in the results of operations.
On January 1, 1999, the Company changed its reporting currency from the German
DM to the Euro. The 1998 financial statements have been restated to reflect the
retroactive application of the Euro as the functional currency based on the
January 1, 1999 exchange rate of EUR 0.51129 to DM 1.00. Accordingly, the
Company's financial statements do not reflect a currency translation adjustment
for the year ended December 31, 1998.
The Company enters into certain foreign exchange forward and option contracts in
order to hedge anticipated rate fluctuations in certain foreign countries (see
Note 12). Transaction gains or losses resulting from these contracts are
recognized over the contract period. The Company uses the fair value method of
accounting, recording realized and unrealized gains and losses on these
contracts. These gains and losses are included in earnings.
New Accounting Standards
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," replacing the "industry segment" approach
with the "management" approach. The management approach designates the internal
organization that is used by management for making operating
<PAGE>
decisions and assessing performance as the source of the Company's reportable
segments. SFAS No. 131 also requires disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS No. 131 did not
affect results of operations or financial position but did affect the disclosure
of segment information (see Note 13).
In March 1998, the AICPA issued Statement of Position No. 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"). SOP 98-1 requires entities to capitalize certain costs related to
internal-use software once certain criteria have been met. The adoption of SOP
98-1 did not have a material impact on the Company's results of operations,
financial position or liquidity.
Accounting Standard Not Yet Adopted
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new accounting and
reporting standards for companies to report information about derivative
instruments, including certain derivative instruments imbedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
This statement is effective for financial statements issued for all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company is currently
analyzing the impact of the adoption of this statement.
4. INVENTORIES:
Inventories consist of the following:
December 10, December 31,
1999 1998
(EUR 000)
Raw materials 13,100 11,348
Work-in-process 542 260
Finished goods 26,247 26,618
----------------- -----------------
39,889 38,226
================= =================
<PAGE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
December 10, December 31,
1999 1998
(EUR 000)
Land 2,294 2,387
Buildings and improvements 33,173 34,167
Machinery and equipment 88,406 82,582
----------------- -----------------
123,873 119,136
Less- Accumulated depreciation
and amortization 76,673 75,992
----------------- -----------------
47,200 43,144
================= =================
Included in property and equipment at December 10, 1999 above is EUR 12,220,000
of equipment under capital lease with EUR 371,000 of accumulated amortization.
In addition, the Company has entered into an agreement to rent its German
laminating facility (see Note 11).
6. ACQUISITIONS:
In January 1999, the Company acquired all of the outstanding shares of
Teollosuutarra OY (Finland) for a consideration of EUR 0.8 million. The company
manufactures bar-code labels and has annual sales of approximately EUR 1.4
million.
<PAGE>
In March 1999,the Company acquired the assets and patents rights of Etirever
S.A. (Spain), a label applicator company, for EUR 0.1 million. The company has
annual sales of approximately EUR 0.5 million.
In April 1999, the company acquired the outstanding shares of Thamesdown Labels,
Ltd. (UK), a manufacturer of bar-code labels. The consideration amounted to EUR
2.4 million and the company has annual sales of approximately EUR 4.8 million.
In July 1999, the company acquired the assets of Bar-code Labeling Systems Pty
(Australia) for a consideration of EUR 0.3 million. The company manufactures
bar-code labels and has annual sales of approximately EUR 1.3 million.
The acquisitions have been accounted for using the purchase method with the
purchase price allocated to the fair value of the net assets acquired. Pro-forma
financial information has not been presented as the acquisitions are immaterial
to the Company.
7. SHORT-TERM BORROWINGS AND LONG-TERM DEBT:
-----------------------------------------
The Company's short-term borrowings and current portion of long-term debt
consists of the following:
December 10, December 31,
1999 1998
(EUR 000)
Trade bills payable 638 1,484
Overdraft borrowings 1,085 8,698
Current portion of
long-term debt 1,531 --
Other borrowings 29,375 619
----------- ----------------
32,629 10,801
=========== ================
The Company's other borrowings consist primarily of short-term loans from
commercial banks that mature on December 15, 1999. Interest on these loans range
from 3.65% to 5.80% and the borrowings are secured by Company assets.
<PAGE>
The Company's long-term debt consists of the following :
December 10, December 31,
1999 1998
(EUR 000)
Capital lease obligations 11,563 --
Installment note payable 4,756 --
Other 3,010 330
---------------- ----------------
19,329 330
================ ================
The aggregate maturities of all long-term debt are as follows:
EUR (000)
2000 1,531
2001 1,897
2002 1,931
2003 1,966
2004 2,000
Thereafter 11,535
------------
20,860
Less-Current portion (1,531)
------------
19,329
8. INCOME TAXES:
Meto AG and subsidiaries, formerly Meto Holding GmbH, has been a tax paying
entity since its formation. However, prior to the spin-off (see Note 1), the
Company includes certain carved-out operations of Meto AG and Esselte AB, some
of which were not separate tax paying entities. The Company has accounted for
income taxes using the separate return method under Statement of Accounting
Standards No. 109, "Accounting for Income Taxes." Accordingly, income taxes have
been recorded as though the Company was a separate tax paying entity for all
periods presented.
In connection with Esselte AB's 1995 legal restructuring of their German
operations, the Company previously recorded a tax provision of EUR 8.1 million,
which was accrued at December 31, 1998, related to estimated taxes due in
Germany. Negotiations are currently in progress with German tax authorities
regarding this matter and regarding the Company's sale of Nielson & Bainbridge
in 1998. At December 10, 1999, EUR 10.2 million is accrued for the tax
settlement of which EUR 2.1 million will be charged to Esselte AB, and
therefore, is reflected as an other current asset in the accompanying balance
sheet.
<PAGE>
The Company's income tax provision consists of the following:
<TABLE>
<CAPTION>
January 1, 1999 to Year Ended
December 10, 1999 December 31, 1998
----------------- -----------------
(EUR 000) (EUR 000)
<S> <C> <C>
Current provision:
German 5,326 5,572
Foreign 6,316 5,698
Deferred provision (benefit) 89 (2,051)
--------------------- ---------
11,731 9,219
===================== =========
</TABLE>
Income before income taxes is attributable to the following geographic
locations:
<TABLE>
<CAPTION>
January 1, 1999 to Year Ended
December 10, 1999 December 31, 1998
---------------------------------------------
(EUR 000) (EUR 000)
<S> <C> <C>
German 3,878 8,201
Foreign 10,289 16,022
------------------------ ----------------------
14,167 24,223
======================== ======================
</TABLE>
In Germany, current year earnings retained in the company are subject to a 40%
corporate income tax (45% in 1998). Income distributed to shareholders is taxed
at 30%; any excess paid over 30% is refunded. Additionally, there is a local
trade tax levied on German income which is deductible for corporate income tax
and a solidarity surcharge based on domestic corporate tax expense. This leads
to an average tax rate of 51% in 1999 and 55% in 1998.
The reconciliation between the German statutory income tax rates and the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
January 1, 1999 to Year Ended
December 10, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Tax at statutory German rate 51% 55%
Foreign tax rate differential, net (10) (15)
Non-deductible goodwill amortization 19 4
Valuation allowance 20 --
Other 3 (6)
--------------------- ---------------------
83% 38%
===================== =====================
</TABLE>
<PAGE>
The components of the Company's net deferred tax asset are as follows:
December 10, 1999 December 31, 1998
----------------- -----------------
(EUR 000) (EUR 000)
Deferred tax assets:
Accounts receivable 261 --
Inventories 2,726 1,777
Accrued expenses 19 --
Loss carryforwards 8,989 8,356
Pension liabilities 4,560 4,980
Other 353 139
------------------- ------------------
16,908 15,252
Less - Valuation allowance 8,415 5,633
------------------- ------------------
Deferred tax assets 8,493 9,619
------------------- ------------------
Deferred tax liabilities:
Property and equipment 36 --
Other 180 360
------------------- ------------------
Deferred tax liabilities 216 360
------------------- ------------------
Net deferred tax asset 8,277 9,259
=================== ==================
The Company has loss carryforwards totaling approximately EUR 26,627,000 at
December 10, 1999. Such loss carryforwards relate primarily to foreign
subsidiaries. The Company has provided a valuation allowance for certain loss
carryforwards based on management's determination that future taxable income
will not be sufficient to recover such carryforwards.
<PAGE>
9. RETIREMENT PLANS:
- - -----------------
The Company maintains several defined benefit pension plans covering
approximately 60% of the total workforce at December 10, 1999. The table below
sets forth the funded status of the Company's plans and amounts recognized in
the accompanying balance sheets.
<TABLE>
<CAPTION>
December 10, December 31,
1999 1998
---------------- ----------
(EUR 000) (EUR 000)
<S> <C> <C>
Actuarial Present Value of:
Vested benefits 44,973 47,331
Unvested benefits 1,230 1,532
--------------- ---------------
Accumulated benefit obligation 46,203 48,863
Effect of projected future compensation
levels 6,524 8,519
--------------- ---------------
Projected benefit obligations 52,727 57,382
Plan assets at fair value 4,959 6,912
--------------- ---------------
Funded status 47,768 50,470
Unrecognized net transition obligation and
prior service costs (2,485) (3,069)
Unamortized net gain (loss) 1,117 (524)
--------------- ---------------
Net pension liabilities 46,400 46,877
=============== ===============
</TABLE>
The weighted average rate assumptions used in determining pension costs and the
projected benefit obligations are as follows:
Discount rate 6.0 %
Expected rate of return on plan assets 6.5 %
Expected rate of increase in future compensation
levels 3.5 %
<PAGE>
The change between periods in the Company's net pension liabilities are as
follows:
January 1, 1999 to Year Ended
December 10, 1999 December 31, 1998
-------------------- -----------------
(EUR 000) (EUR 000)
Balance, beginning of period 46,877 43,471
Net periodic pension costs 4,772 4,999
Contributions -- --
Benefits paid (2,512) (1,593)
Divestments (2,737) --
------------------ ---------------
Balance, end of period 46,400 46,877
================= ================
The divestments represent the impact of employees leaving the Company to join
Raflatac Produktions GmbH in connection with the sale of the Company's German
laminating operation (see Note 11).
The Company's net periodic pension costs include the following components:
<TABLE>
<CAPTION>
January 1, 1999 to Year Ended
December 10, 1999 December 31, 1998
----------------- -----------------
(EUR 000) (EUR 000)
<S> <C> <C>
Service cost 1,608 1,935
Interest on PBO 3,143 2,962
Actual return on plan assets (562) (517)
Net amortization and deferrals 583 619
---------------------- ----------------------
4,772 4,999
====================== ======================
</TABLE>
10. RELATED PARTY TRANSACTIONS:
---------------------------
Total sales to companies within the Esselte AB group were EUR 1,213,000 and EUR
1,852,000 for the period from January 1, 1999 to December 10, 1999 and for the
year ended December 31, 1998, respectively. At December 10, 1999, the Company
had trade receivables and trade payables with Esselte AB of EUR 60,000 and EUR
217,000, respectively, and at December 31, 1998, the Company had trade
receivables and trade payables of EUR 15,000 and zero with Esselte AB.
In addition, the Company was charged management fees by Esselte for various
shared administrative and legal services of EUR 0.3 million and EUR 0.8 million
and interest expense on borrowings of EUR 0.2 million and EUR 0.4 million,
respectively for the period from January 1, 1999 to December 10, 1999 and for
the year ended December 31, 1998, respectively.
<PAGE>
Sven Ohlsson, the Chairman of Meto AG, was also a board member of Esselte AB.
Jan Kvarnstrom, a board member of Meto AG, was CEO of Esselte AB.
11. COMMITMENTS AND CONTINGENCIES:
------------------------------
The Company leases certain property and equipment under non-cancelable operating
leases. Rent expense under all operating leases for the period from January 1,
1999 to December 10, 1999 and for the year ended December 31, 1998 was EUR
7,669,000 and EUR 8,024,000, respectively. Future minimum payments under all
non-cancelable operating leases at December 10, 1999, are as follows:
EUR (000)
2000 6,638
2001 4,647
2002 3,423
2003 2,674
2004 1,706
Thereafter 1,837
------------
20,925
Purchase Commitments
The Company is renting its German laminating facility, which has a net carrying
value of EUR 23,256,000 at December 10, 1999, to Raflatac Produktions GmbH, a
subsidiary of UPM-Kymmene Corporation. In connection with the rental agreement
the Company has agreed to purchase a certain volume of paper, which equates to
approximately 50% of its current annual world-wide paper consumption, for the
duration of the rental term. The facility rental agreement provides for a
termination fee of EUR 2,045,000 prior to 2009 and EUR 511,000 after 2009 to be
paid by the terminating party.
Litigation
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. Management believes that the outcome of such
litigation and claims will not have a material adverse effect on the Company's
financial position or results of operations.
12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:
------------------------------------------
The Company is exposed to several financial risks, including currency risks,
interest rate risks and credit risks. The following is a description of these
risks and the Company's policy to reduce them.
<PAGE>
Currency risks
Transaction exposure
The transaction exposure arises because the cost of a product originates in one
currency and the product is sold in another. Since part of the flow is two-way,
the Company's net exposure is reduced. The net exposure is spread over many
currencies which counteract each other to some extent. The single largest net
exposure consists of Meto's purchases of Singapore Dollars against Euros.
Meto's policy is to hedge 75% of the annual net exposure exceeding the
corresponding value of EUR 5 million, based on rolling monthly purchasing
forecasts, for periods between three and six months.
The hedged net exposure as of December 10, 1999 and December 31, 1998, totaled
approximately EUR 1.9 million and EUR 3.4 million, respectively, and was hedged
for an average period 3.5 months and 4.5 months, respectively.
Translation exposure in the income statement
Another effect of exchange rate fluctuations arises when income statements of
foreign subsidiaries are translated into Euros. The income statements of foreign
subsidiaries are translated into Euros using the average exchange rates for the
period.
Meto's operations are mainly denominated in European currencies, which is why
the Euro has been selected as a reporting currency for presentation purposes.
Meto's foreign currency consolidated sales composition is approximately as
follows:
% of net sales
EUR 60%
USD 14
Other 26
-----------
Total 100%
===========
Translation exposure in the balance sheet
A translation exposure also arises when the balance sheets of foreign
subsidiaries are translated into Euros. Total assets and net indebtedness change
as a consequence of the Euro movements. A stronger Euro reduces the Company's
total assets, capital employed and net financial liabilities, and increases the
equity to assets ratio.
Since most of the Company's businesses are in the Euro area, the Company's
policy is not to hedge the equity of foreign subsidiaries.
<PAGE>
Interest rate risks
Based on the net borrowing position of the Company as of December 10, 1999, a 1%
rise in interest rates would increase interest expense by EUR 200.
Credit risks
Credit risks in financing operations arise in connection with the placement of
liquid assets and in the form of counter-party risks when entering forward
exchange agreements. To reduce credit risks, investment of liquidity and forward
exchange agreements can only be arranged with a very restricted number of banks
within the limits approved by Meto's Management Board. The Company's policy is
to work with banks that have a high credit rating and also participate in the
Company's financing.
Counter-party risks arise when Meto enters into forward exchange agreements. All
of these contracts are entirely linked to the handling of the Company's
transaction exposure and borrowings.
At December 10, 1999, Meto had outstanding contracts with a remaining term of up
to five months. The average remaining term was three months.
Financial instruments
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. Forward exchange contracts are used
to hedge foreign currency receivables and payables and forecasted sales orders
and purchases in foreign currency.
<PAGE>
As of December 10, 1999, the following forward exchange contracts were
outstanding:
<TABLE>
<CAPTION>
Nominal amount Number of
Currency (thousands) Contracts Contract dates Maturity dates
- - -------- ------------------------ --------------- ------------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SGD 1,800 2 10/19/99 01/21/00 - 02/18/00
GBP 530 4 08/20/99 - 09/22/99 - 01/21/00 - 02/18/00 -
11/05/99 03/24/00 - 04/20/00
</TABLE>
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments at December 10, 1999.
<TABLE>
<CAPTION>
Carrying Amount Fair Value
-----------------------------------------
(EUR 000) (EUR 000)
<S> <C> <C>
Financial assets:
Cash in bank 12,759 12,759
Accounts receivable 66,740 66,740
Other financial assets 23,672 23,672
Financial liabilities:
Short-term loans 32,629 32,629
Long-term loans 19,329 19,329
Derivatives: -- --
Forward exchange contracts 1,900 1,900
</TABLE>
13. GEOGRAPHIC REPORTING AND SEGMENT INFORMATION:
---------------------------------------------
The Company is an international provider of value-added labeling solutions for
article identification and security to improve customer sales and processes,
primarily in the retail sector and in the retail supply chain. The Company has
four principal product lines (see Note 1): (i) barcode labeling system ("BCS"),
(ii) electronic article surveillance ("EAS"), (iii) hand-held labeling systems
("HLS") and (iv) retail merchandising systems ("RMS"). The Company generally
evaluates performance based on the net revenues and operating profits of its
respective geographic segments. No customer accounts for more than 10% of a
segment's net revenues.
Geographic operating results are prepared on a "customer basis," meaning that
net revenues and operating income (loss) are included in the geographical area
where the customer is located. Assets are included in the geographic area in
which the producing entities are located. Inter-area sales between the Company's
locations are made at transfer prices that approximate market price and have
been eliminated from consolidated net
<PAGE>
<PAGE>
revenues. Operating income (loss) for the individual areas includes the
profitability on a transfer price basis, generated by sales of the Company's
products imported from other geographic areas. Geographic information is as
follows:
<PAGE>
<TABLE>
<CAPTION>
Net Revenues Inter-co Total Operating Depreciation/ Identifiable Capital
Revenues Revenues Income Amortization Assets Expenditures
1999 (EUR 000)
----
<S> <C> <C> <C> <C> <C> <C> <C>
Germany 72,701 76,221 148,922 2,091 5,330 71,372 10,447
France 42,059 158 42,217 2,432 873 33,401 86
Netherlands 30,625 5,515 36,140 1,112 3,186 20,614 828
Rest of Europe 116,512 2,545 119,057 3,841 3,003 60,962 2,325
US 47,696 2,338 50,034 2,684 2,024 20,590 1,198
Rest of Americas 9,017 -- 9,017 961 66 2,330 294
Asia/ Pacific Rim 24,712 5,865 30,577 3,530 1,546 17,379 1,415
Eliminations -- (92,642) (92,642) -- -- -- --
---------- ---------- ---------- ---------- --------------- ------------- ------------
343,322 -- 343,322 16,651 16,028 226,648 16,593
========== ========== ========== ========== =============== ============= =============
1998
----
82,464 84,691 167,155 4,772 4,206 41,169 3,178
Germany
France 45,822 110 45,932 3,541 394 32,538 201
Netherlands 30,958 5,650 36,608 4,850 1,046 22,558 1,538
Rest of Europe 107,558 2,962 110,520 5,001 2,480 57,618 2,241
US 46,563 2,301 48,864 2,496 1,765 19,214 888
Rest of Americas 8,729 -- 8,729 1,394 63 2,068 89
Asia/ Pacific Rim 22,540 5,616 28,156 3,496 1,350 17,663 1,065
Elimination -- (101,330) (101,330) -- -- -- --
---------- --------- --------- ---------- --------------- ------------- ------------
344,634 -- 344,634 25,550 11,304 192,828 9,200
========== ========== ========== ========== =============== ============= =============
</TABLE>
<PAGE>
Only long-lived assets which are directly attributable to the product segments
are shown in the table below.
<TABLE>
<CAPTION>
HLS BCS EAS RMS Other Total
------------ ------------ ------------ ------------ ----- ----------
1999 (EUR 000)
----
<S> <C> <C> <C> <C> <C> <C>
Net revenues from external
customers 82,753 124,773 81,520 45,161 9,115 343,322
Operating income (loss) 20,532 (3,524) 2,490 (1,037) (1,810) 16,651
Long-lived assets 2,938 17,402 7,271 120 __ 27,731
1998
Net revenues from external
customers 89,021 117,665 76,217 46,175 15,556 344,634
Operating income (loss) 25,239 (1,340) 3,564 (271) (1,642) 25,550
Long-lived assets 3,480 14,431 8,138 2,992 __ 29,041
</TABLE>
<PAGE>
CHECKPOINT SYSTEMS, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited pro forma financial statements give effect
to the acquisition of Meto AG ("Meto") by Checkpoint Systems, Inc. ("Checkpoint"
or the "Company") as described in Note 1 of Notes to Unaudited Pro Forma
Financial Statements. The unaudited pro forma financial statements have been
prepared assuming the acquisition had occurred as of September 26, 1999, in the
case of the unaudited pro forma balance sheet, and as of January 1, 1998, in the
case of the unaudited pro forma statements of operations.
The Company's fiscal year is the 52-53 week period ending the last
Sunday of December and Meto's fiscal year is a calendar year. Therefore, the
unaudited pro forma statements of operations combine the Company's results for
the 39-weeks ended September 26, 1999 and the 52-weeks ended December 27, 1998
with Meto's results for the nine months ended September 30, 1999 and the year
ended December 31, 1998, respectively. The unaudited pro forma balance sheet
presents the Company's September 26, 1999 balance sheet and Meto's September 30,
1999 balance sheet and adjustments to reflect the application of the purchase
method of accounting based on Meto's assets and liabilities as of the December
10, 1999 acquisition date.
The unaudited pro forma financial statements have been prepared by
management and should be read in conjunction with the historical financial
statements of the Company and Meto. These statements are based on certain
assumptions and preliminary estimates, which are subject to change. They do not
purport to be indicative of the financial positions or results of operations
that might have occurred, and do not purport to be indicative of future results.
Management believes additional synergies and operational improvements
will be realized by the acquisition. However, such amounts are not factually
supportable for purposes of Article 11 of Regulation S-X and, therefore, are not
reflected in the accompanying unaudited pro forma statements of operations.
<PAGE>
CHECKPOINT SYSTEMS, INC.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 26, 1999
<TABLE>
<CAPTION>
Adjustments
Checkpoint Meto (1) Debit Credit Pro Forma
--------------- ---------------- --------------- ---------------- -------------
(in thousands)
ASSETS
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 83,707 $ 16,628 $ 311,495 (a) $ 342,263 (a) $ 69,567
Accounts receivable 122,924 86,013 -- 13,868 (b) 195,069
Inventories 65,072 42,986 -- 2,371 (b) 105,687
Other current assets 16,981 7,898 3,250 (b) -- 28,129
--------------- --------------- ------------- ------------ ---------------
Total current assets 288,684 153,525 314,745 358,502 398,452
Equipment on operating lease, net 21,957 -- -- -- 21,957
Property, plant and equipment, net 85,255 36,332 11,727 (b) 3,576 (e) 129,738
Goodwill, net 69,913 11,905 259,774 (c) 14,366 (c) 327,226
Intangible assets, net 9,886 1,841 11,871 (d) 107 (f) 23,491
Other long-term assets 41,111 18,274 -- 6,438 (b) 52,947
--------------- --------------- ------------ ------------- ---------------
$ 516,806 $ 221,877 $ 598,117 $ 382,989 $ 953,811
=============== =============== ============ ============ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 13,444 $ 18,929 $ 30,755 (g) $ 44,421 (g) $ 46,039
Accounts payable 22,343 18,407 -- 882 (b) 41,632
Other current liabilities 57,232 66,687 3,267 (j) 35,821 (h) 156,473
--------------- --------------- ------------- ------------- ---------------
Total current liabilities 93,019 104,023 34,022 81,124 244,144
Long-term debt 40,298 18,908 38,339 (g) 265,865 (g) 286,732
Convertible debt 120,000 -- -- -- 120,000
Other long-term liabilities 811 55,640 8,176 (b) -- 48,275
--------------- --------------- ------------- ------------ ---------------
Total liabilities 254,128 178,571 80,537 346,989 699,151
--------------- --------------- ------------ ------------ ---------------
Minority interest 462 -- -- 510 (k) 972
--------------- --------------- ------------ ------------- ---------------
Shareholders' equity 262,216 43,306 51,834 (i) -- 253,688
--------------- --------------- ------------- ------------ ---------------
$ 516,806 $ 221,877 $ 132,371 $ 347,499 $ 953,811
=============== =============== ============ ============ ===============
</TABLE>
(1) Amounts have been translated at the exchange rate of EUR 0.9428 to $1.00 on
September 30, 1999.
See Notes to Unaudited Pro Forma Financial Statements
<PAGE>
CHECKPOINT SYSTEMS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS (39 WEEKS) ENDED SEPTEMBER 26, 1999
<TABLE>
<CAPTION>
Adjustments
Checkpoint Meto(1) Debit Credit Pro Forma
---------------- ---------------- ---------------- ---------------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues $ 259,801 $ 282,227 $ -- $ -- $ 542,028
Cost of revenues 155,946 164,284 -- -- 320,230
--------------- --------------- ------------- ------------- ---------------
Gross profit 103,855 117,943 -- -- 221,798
Selling, general and administrative
expenses 82,425 99,502 6,055 (l) -- 187,982
--------------- --------------- --------------- ------------- ---------------
Income from operations 21,430 18,441 (6,055) 33,816
Interest expense, net 3,082 1,382 8,722 (m) -- 13,186
Other expense, net 1,384 -- -- -- 1,384
--------------- --------------- ------------- ------------- ---------------
Income before income taxes 16,964 17,059 (14,777) -- 19,246
Income taxes 5,174 6,485 -- (3,353) (n) 8,306
Minority interest (income) loss 11 (8) 156 (o) -- 159
--------------- ---------------- -------------- ------------- ---------------
Net earnings $ 11,779 $ 10,582 $ (14,933) $ 3,353 $ 10,781
=============== =============== ============= ============= ===============
Net earnings per share:
Basic $ 0.39 $ 0.36
=============== ===============
Diluted $ 0.39 $ 0.35
=============== ===============
</TABLE>
(1) Amounts have been translated at the average exchange rate of EUR 0.9428 to
$1.00 during the nine months ended September 30, 1999.
See Notes to Unaudited Pro Forma Financial Statements
<PAGE>
CHECKPOINT SYSTEMS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR (52 WEEKS) ENDED DECEMBER 27, 1998
<TABLE>
<CAPTION>
Adjustments
Checkpoint Meto(1) Debit Credit Pro Forma
---------------- ---------------- --------------- --------------- -----------
( in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues $ 362,407 $ 404,671 $ -- $ -- $ 767,078
Cost of revenues 215,310 228,830 -- -- 444,140
--------------- --------------- ------------- ------------- ---------------
Gross profit 147,097 175,841 -- -- 322,938
Selling, general and administrative
expenses 117,034 145,841 7,710 (l) -- 270,585
Restructuring charge (600) -- -- -- (600)
--------------- --------------- ------------- ------------- ---------------
Operating income 30,663 30,000 (7,710) -- 52,953
Interest expense, net 4,822 1,558 12,918 (m) -- 19,298
Other income, net 343 -- -- -- 343
--------------- --------------- ------------- ------------- ---------------
Income before income taxes 26,184 28,442 (20,628) -- 33,998
Income taxes 8,509 10,825 -- (4,921) (n) 14,413
Minority interest (income) loss (10) -- 280 (o) -- 270
--------------- --------------- -------------- ------------- ---------------
Net earnings $ 17,685 $ 17,617 $ (20,908) $ 4,921 $ 19,315
=============== =============== ============= ============= ===============
Earnings per share:
Basic $ .55 $ 0.60
=============== ===============
Diluted $ .53 $ 0.58
=============== ===============
</TABLE>
(1) On January 1, 1999, Meto changed its reporting currency from the German DM
to the Euro and restated its 1998 financial statements. Accordingly, the
1998 amounts have been translated to Euro based on the January 1, 1999
exchange rate of EUR 0.51129 to DM 1.0 and from Euro to US dollars at the
exchange rate of EUR 0.85164 to $1.00 on January 1, 1999.
See Notes to Unaudited Pro Forma Financial Statements
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BACKGROUND:
- - -------------------
On December 10, 1999, Checkpoint Systems, Inc. ("Checkpoint" or the "Company")
consummated its acquisition of 98.57% of the outstanding shares of Meto AG
("Meto") pursuant to a cash tender offer. The aggregate purchase price for the
shares acquired was $260.5 million, plus transaction costs of $4,635,000. In
connection with the acquisition, the Company entered into a new $425 million
credit facility provided by several lenders. The credit facility includes a $275
million term note and a $150 million revolving line of credit. The terms of the
new credit facility required the Company to retire all existing senior debt. In
connection with the senior debt restructuring, Checkpoint incurred $7.2 million
in placement fees and expenses and a $796,000 prepayment penalty. In addition,
$107,000 of unamortized deferred financing costs related to old debt was
written-off.
In connection with the acquisition, the Company adopted a restructuring plan.
The plan includes a workforce reduction of approximately 400 employees and the
consolidation of 15 duplicate offices and warehouse facilities. The costs
related to the Meto restructuring plan will be accrued as of the acquisition
date and included in the Company's purchase price allocation. The costs related
to the Checkpoint restructuring plan will be accrued at December 26, 1999 and
charged to earnings during the fourth fiscal quarter of 1999. The restructuring
plans have been considered in the preparation of the accompanying pro forma
balance sheet, and include the following items:
<TABLE>
<CAPTION>
Checkpoint Meto Total
<S> <C> <C> <C>
Employee terminations $ 3,097,000 $ 17,642,000 $ 20,739,000
Lease obligations 3,248,000 3,060,000 6,308,000
Property and leasehold write-offs 2,086,000 1,490,000 3,576,000
Goodwill impairment 2,461,000 -- 2,461,000
-------------- -------------- --------------
$ 10,892,000 $ 22,192,000 $ 33,084,000
============== ============== ==============
</TABLE>
Various other costs will also be incurred in connection with the integration of
the two companies, including moving costs, training costs, consulting fees,
professional fees and systems related expenditures, among others. The pro forma
balance sheet does not reflect such integration costs that will be incurred
primarily during fiscal 2000, as the amounts will be recorded as incurred and
are not reasonably estimated. The Company anticipates spending between $6
million and $8 million for such integration related expenditures.
<PAGE>
The pro forma statements of operations do not include any of the restructuring
or integration costs discussed above, as these amounts are nonrecurring and not
reflective of the ongoing business. The pro forma statements of operations also
do not include expense reductions and synergies that the Company expects to
realize from the acquisition, as such amounts are not factually supportable for
purposes of Article 11 of Regulation S-X.
2. BALANCE SHEET ADJUSTMENTS:
- - ----------------------------------
(a) Reflects the sources and uses of cash, as follows (in 000's):
SOURCES OF CASH:
Adjustment to reflect actual Meto cash acquired $ 16,276 (b)
Cash proceeds from new credit facility 295,219
---------------
$ 311,495
USES OF CASH:
Cash paid for Meto shares $ 260,527
Transaction costs 4,635
Repayment of existing Company debt 46,160
Repayment of existing Meto debt 22,934
Financing and prepayment fees 8,007
---------------
$ 342,263
(b) Adjustment made to reflect the change in Meto's account balances from
September 30, 1999 to the December 10, 1999 acquisition date.
(c) Reflects the elimination of Meto's historical goodwill of $11,905,000, the
impairment of Checkpoint goodwill of $2,461,000 and the recording of the
excess of purchase price over the fair value of the net assets acquired of
$259,774,000. The Company's purchase allocation has not yet been finalized.
Therefore, for purposes of presenting the pro forma financial statements,
the Company has allocated all of the excess purchase price to goodwill.
(d) Reflects an adjustment to increase Meto's intangible assets by $4,660,000
to reflect the change in the account balance from September 30, 1999 to the
December 10, 1999 acquisition date, and the recording of deferred financing
costs of $7,211,000 related to the new credit facility.
(e) Represents the write-off of fixed assets and leasehold improvements related
to the elimination of redundant operating facilities as follows (in 000's):
Checkpoint $ 2,086
Meto 1,490
----------------
$ 3,576
================
<PAGE>
(f) Reflects the write-off of the unamortized deferred financing costs related
to the Company's old credit facility.
(g) Reflects the Company's debt restructuring, as follows (in 000's):
<TABLE>
<CAPTION>
DEBT REPAYMENTS:
<S> <C>
Repayment of Checkpoint revolver $ 21,339
Repayment of Checkpoint term notes 24,821
Repayment of Meto debt 22,934
---------------
Total repayments 69,094
Short-term debt repayments (30,755)
---------------
Long-term debt repayments $ 38,339
===============
NEW BORROWINGS:
Total borrowings under new facility $ 295,219
Adjustment to reflect actual Meto debt assumed 15,067 (b)
Amount classified as current (44,421)
---------------
Amount classified as long-term $ 265,865
===============
(h) Reflects the following adjustments (in 000's):
Restructuring reserve for Meto operations $ 20,702
Restructuring reserve for Checkpoint operations 6,345
Adjustment to reflect the increase in the amount of Meto accrued expenses
from September 30, 1999 to the December 10, 1999 acquisition date
8,774 (b)
----------------
$ 35,821
(i) Reflects the following adjustments (in 000's):
Elimination of Meto's shareholders equity $ 43,306
Checkpoint restructuring charge 10,892
Debt prepayment penalty 796
Write-off of unamortized deferred debt costs 107
Income tax benefit (3,267)
---------------
$ 51,834
</TABLE>
(j) Represents a reduction in accrued income taxes for the income tax benefit
in (i) above.
(k) Represents the minority interest liability for the Meto common stock not
yet purchased as of the acquisition date.
<PAGE>
3. STATEMENTS OF OPERATIONS ADJUSTMENTS:
- - ---------------------------------------
(l) Reflects the net increase in amortization expense as follows (in 000's):
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 26, 1999 December 27, 1998
-------------------- -----------------
<S> <C> <C> <C>
New goodwill amortized over 30 years $ 6,494 $ 8,659
New deferred financing costs amortized
over six years 902 1,202
Elimination of Meto goodwill amortization (1,297) (2,092)
Elimination of old deferred financing costs amortization
(44) (59)
--------------------- ---------------------
$ 6,055 $ 7,710
===================== =====================
</TABLE>
(m) Reflects interest expense of the new credit facility at expected current
interest rates, offset by the elimination of interest expense related to
old debt that was repaid as a result of the debt restructuring discussed in
footnote (g).
(n) Reflects the tax benefit of the additional amortization expense related to
deferred financing costs and the additional interest expense related to the
debt restructuring.
(o) Represents the minority interest related to the Meto common stock not yet
purchased as of the acquisition date.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
- - ------- -----------
EXHIBIT 23 Consent of Independent Accountants
<PAGE>
SIGNATURE PAGE
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 hereunto duly authorized.
February 25, 2000
Checkpoint Systems, Inc.
/s/ Jeffrey A. Reinhold
Jeffrey A. Reinhold
Senior Vice President,
Chief Financial Officer and Treasurer
Consent of Independent Accountants
As independent accountants, we hereby consent to the incorporation of our report
on the financial statements of Meto AG and subsidiaries as of December 10, 1999
and December 31, 1998 and for the periods then ended included in this Form 8-K
filing of Checkpoint Systems, Inc., into Checkpoint Systems, Inc.'s previously
filed registration statements file Nos. 333-70213, 333-35539, 33-49191, 33-16721
and 333-01085.
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
Gunter Nahs Lutz Frey
Wirtschaftsprufer Wirtschaftsprufer
(Authorised Public Accountant) (Authorised Public Accountant)
Eschborn / Frankfurt am Main
February 22, 2000
