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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 25, 1994 Commission File No. 1-11257
CHECKPOINT SYSTEMS, INC.
(Exact name of Registrant as specified in its Articles of Incorporation)
Pennsylvania 22-1895850
(State of Incorporation) (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) (Zip Code)
609-848-1800
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, Par Value $.10 Per Share
Common Share Purchase Rights
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
--- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or on any amendment to this Form 10-K. X
---
As of February 21, 1995, the aggregate market value of the Common Stock
held by non-affiliates of the Registrant was approximately $236,000,000.
As of February 21, 1995, there were 10,733,328 shares of the Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - The Company's definitive proxy statement for its Annual Meeting
of Shareholders, presently scheduled to be held on April 27, 1995.
PART I
Item 1. BUSINESS
Checkpoint is a designer, manufacturer and distributor of integrated
electronic security systems -- utilizing proprietary radio frequency
("RF") technologies -- designed primarily to help retailers prevent losses
caused by theft of merchandise. The Company markets a wide range of these
systems, including electronic article surveillance ("EAS")systems, closed
circuit television ("CCTV") systems, point-of-sale ("POS") monitoring
systems and access control systems. Over the past four years, the Company
has achieved substantial growth, both through internal expansion and
acquisitions, as a result of the repositioning of the Company by current
management through the introduction of new products, broadened and more
direct distribution (particularly in its international markets) and
increased and more efficient manufacturing capability. The Company holds
or licenses over 200 patents and proprietary technologies relating to its
products and their manufacture.
The Company's key product offerings use a low-cost disposable, paper-thin
target which triggers an alarm when passed through the Company's sensors
at the point of exit from the retail site. These disposable targets, which
are manufactured using the Company's proprietary technology at its state-
of-the-art facility in Puerto Rico, can be easily installed on products or
within packaging at the retail outlet or at the product manufacturing
source and can be easily deactivated without locating the tag. Sales of
these disposable targets and field service of their associated sensors and
deactivation units provide a significant and growing source of recurring
revenues and accounted for approximately 37% of the Company's net revenues
for fiscal year 1994. The Company's business strategy focuses on
capitalizing on retailers' increasing attention to theft prevention
through use of the Company's proprietary RF technology-based products.
The Company's diversified product lines are designed to help retailers
prevent losses caused by theft (both by customers and employees) while at
the same time enabling retailers to capitalize on consumer impulse buying
by openly displaying higher volume, higher margin merchandise, and to
reduce associated selling costs through lower staff requirements. The
Company's broad and flexible product lines, marketed and serviced by its
extensive sales and service organization, have helped the Company emerge
as the preferred supplier to such hard goods retail chains as Caldor,
Circuit City, Lucky's Grocery, Ralph's, Rite-Aid, Ross, Target, and
Walgreens. In addition, the Company's manufacturing facilities have the
current capacity to produce up to three billion disposable RF targets per
year at a low cost.
Beginning in September 1991, the Company's current management started to
reposition the Company through the introduction of new products, broadened
and more direct distribution (particularly in its international markets)
and increased and more efficient manufacturing capability. The Company's
strategy is to continue to increase its sales penetration in existing
markets and develop a significant presence in new geographic markets.
These objectives will be attained by continually enhancing
and expanding its RF technologies and products, providing superior service
to its customers and expanding its direct sales activities through
acquisitions and start-up operations. The Company is focused on providing
its customers with a wide variety of fully integrated electronic security
system solutions characterized by superior quality, ease of use, good
value and merchandising opportunity for the retailer.
The Company has its principal executive offices at 101 Wolf Drive,
Thorofare, New Jersey 08086, (609-848-1800). Unless the context requires
otherwise, the "Company" means Checkpoint Systems, Inc. and its
subsidiaries on a consolidated basis.
COMPANY HISTORY
In 1969, the Company was incorporated in Pennsylvania as a wholly-owned
subsidiary of Logistics Industries Corporation. In 1977, Logistics,
pursuant to the terms of its merger into Lydall, Inc., distributed the
Company's Common Stock to Logistics' shareholders as a dividend. In
February, 1986, the Company acquired Sielox Systems, Inc., which
developed, produced and marketed access control systems for use in
commercial and institutional applications. In August, 1990, Sielox's
operations were combined with the Company's.
The Company acquired its Canadian Distributor in November of 1992 and
Argentinean Distributor in March of 1993. In addition, the Company set up
direct operations in Mexico during March of 1993 and Australia during June
of 1993. All of these subsidiaries market EAS systems for use in retail
and library applications.
In July of 1993, the Company purchased all the outstanding capital stock
of ID Systems International B.V. and ID Systems Europe B.V., related Dutch
Companies ("ID Systems Group") engaged in the manufacture, distribution
and sale of EAS systems. The acquisition gave the Company direct access
to six Western European countries which include The Netherlands, United
Kingdom, Sweden, Germany, France and Belgium.
On February 1, 1995 the Company purchased Alarmex, Inc. for approximately
$13.5 million ($10 million in cash and the balance in 200,717 shares of
restricted Common Stock of the Company). Alarmex designs and provides
CCTV, POS monitoring, burglar and fire alarm systems and also provides
related central station monitoring services to over 9,000 retail sites in
the United States.
Principle Product Categories
----------------------------
Electronic Article Surveillance
EAS systems act as a deterrent to, and control the increasing problem of
theft in such establishments as retail stores and libraries. Over the
past two decades, retail establishments have recognized that the most
effective theft-prevention method is to monitor articles. Other means of
theft prevention, (special mirrors, security guards, closed-circuit
television systems and surveillance cameras) monitor people, not the
articles to be protected, and this limitation among others is addressed by
EAS systems.
The Company's diversified product lines are designed to help retailers
prevent losses caused by theft (both by customers and employees) while at
the same time enabling retailers to capitalize on consumer impulse buying
by openly displaying higher volume, higher margin merchandise, and to
reduce associated selling costs through lower staff requirements.
Sophisticated data collection systems (primarily bar-code scanners)
available to retailers have highlighted the shrinkage problem and,
consequently, retailers now realize that the implementation of an
effective electronic security system can significantly increase
profitability. Accordingly, the retail industry is becoming increasingly
focused on theft prevention.
EAS systems are generally comprised of three components: detectable and
deactivatable security circuits (embedded in tags or labels), referred to
as "targets", which are attached to or placed in the articles to be
protected; electronic detection equipment, referred to as "sensors", which
recognize the targets when they enter a detection area, usually located in
the exit path; and deactivation equipment that disarms the target when
patrons follow proper check-out procedures.
Access Control Systems
Electronic access control systems restrict access to areas requiring
protection from intrusion by unauthorized personnel by granting access
only to selected individuals at specified times. Recent developments in
Electronic Signatures(R) processing and other technologies have enhanced
the sophistication of electronic access control systems at a low cost.
Electronic access control systems use an "electronic key", such as a
plastic card with a magnetic strip or embedded magnetic code that is
interpreted by an "electronic reader". The most advanced access control
systems utilize plastic cards containing an encoded digital integrated
circuit as electronic keys. These can be coded with a personal
identification number ("PIN"). Once the cardholder presents the card
containing a PIN, an intelligent controller, which is also part of the
access control system, determines security clearance/access levels. This
data, along with time of entrance and exit, can be recorded for later
analysis.
POS Monitoring Systems
----------------------
Point-of-sale systems sold by the Company through its Alarmex subsidiary
(acquired in early 1995) record and store videotape check-out transactions
which enable retailers to monitor check-out events for questionable
transactions.
Products
--------
Product Descriptions
EAS Systems
Checkpoint offers a wide variety of EAS solutions to meet the requirements
of different retail store configurations. A Checkpoint EAS system is
primarily comprised of sensors and deactivation units, which respond to or
act upon the Company's targets.
The Company's EAS products are designed and built to comply with
applicable Federal Communications Commissions ("FCC") regulations
governing radio frequencies, signal strengths and other factors. The
Company's present EAS products requiring FCC certification comply with
applicable regulations. In addition, the Company's present EAS products
meet other regulatory specifications for the countries in which they are
sold.
Sensors
The Company's sensor product lines are used principally in retail
establishments and libraries. In retail establishments, EAS system
sensors are usually positioned at the exits from the areas in which
protected articles are displayed. Each sensor unit includes either one or
two vertical posts placed at preset distances (i.e. 3 to 6 feet) apart.
-------------------------
The symbol(R) represents a registered trademark of the Company.
The symbol(TM) represents a trademark of the Company.
In libraries, sensors are positioned at the exit paths, and gates or
turnstiles control traffic. Targets are placed inside books and other
materials to be protected. A target passing through the sensor triggers
an alarm, which locks the gate or turnstile. The target can easily be
deactivated or passed around the sensor by library personnel.
EAS system components include twelve styles of sensors (each including
transmitter, receiver and alarm), and the customer's choice of patented
disposable paper targets, reusable flexible targets and reusable hard
plastic targets. The EAS system's transmitter emits an RF signal and the
receiver measures the change in that signal caused by an active target,
causing the system to alarm. For fiscal years 1994, 1993 and 1992, the
percentage of the Company's net revenues from sensors was 27%, 30% and
34%, respectively.
Introduced in 1990, the QS2000(R) is the latest evolution in the Company's
proven Quicksilver(TM)sensor product line. With the addition of
microprocessor-based radio frequency signal processing, the QS2000 has
been engineered to provide excellent target detection with enhanced
target-discrimination capabilities. The QS2000 analyzes RF signals in its
detection zone and can discriminate between unique target signals and
environmental interference. This development greatly reduces false and
"phantom" alarms while increasing target detection. The QS2000 is also
available in a weatherized version for outdoor use. The QX2000 is a
similar system to the microprocessor based QS2000 system with the added
flexibility of modular electronics design. The modular design provides an
improved service capability in addition to permitting the system to
operate at three different RF frequencies.
Introduced in 1993, the Condor(R) sensor is the most technically advanced
RF system on the market today. A significant feature of this system is
the combination of a receiver and transmitter in a single post. Utilizing
a microprocessor and two digital signal processors, the Condor has an
aisle width of 12 feet using two posts. One sensor is capable of three
feet detection on either side of the sensor. Additional features include
the ability to mount full-sized merchandising panels, a customer counter,
an alarm counter and variable alarm tone.
Also introduced in 1993, the QS1500(TM)and QS1600(TM)are value-priced,
reusable target systems designed primarily for providing wide aisle
protection for the apparel marketplace. The QS1500 has three feet of
detection on either side of a single post, or it can protect up to six
feet between two posts. For wider detection, the QS1600 with two
pedestals can detect targets at distances of up to twelve feet, which is
ideal for shopping mall environments. This system is an inexpensive
answer to wide aisle detection.
The Company also offers chrome-finished Quicksilver sensors, solid-oak
Signature(R) sensors, featuring an earlier generation of components, the
QS3000(R), a wide aisle system that can span up to five feet, and the In-
Line Supermarket, which is a narrow aisle system designed specifically for
hypermarkets. Most of the Company's sensors can be used with the various
targets available.
In 1994, the Company introduced the QS4000(TM) sensor. With digital
signal processing, this advanced sensing systems adjusts its detection to
changing environmental conditions. This new sensor model may be placed in
close proximity to deactivation units or near tagged merchandise so that
stores can maximize selling space. The QS4000 protects aisle widths up to
42 inches using disposable targets, and up to 60 inches using reusable
targets.
Deactivation Units
Deactivation units are used to eliminate the ability of the tag to be
identified by the RF field in the sensor and set off an alarm.
Deactivation usually occurs at the check-out point. In 1986, the Company
introduced Counterpoint(R), a noncontact deactivation unit which
eliminated the need to search for and remove or manually detune disposable
targets. Since 1989, the Company has expanded its deactivation products
with electronic modules that can be installed into numerous bar code
scanners including those manufactured by SpectraPhysics Retail Systems,
Symbol Technologies, Inc., Metrologic, Inc., National Cash Register, Inc.,
ICL Systems, Inc., IBM (International Business Machines) and Fujitsu Ltd.
These modules allow the reading of bar code information, while
deactivating targets in a single step. These deactivation units allow
retail personnel to focus on the customer and minimize errors at check-
out. During 1993, the Company developed an improved deactivation unit,
Counterpoint(R) IV, which increased deactivation height to twelve inches
and improves the rate of product deactivation. In 1994, the Company
increased the deactivation height beyond twelve inches with the
introduction of Counterpoint V. These product improvements significantly
increased the reliability of accurate deactivation. For 1994, 1993, and
1992, the percentage of the Company's net revenues from deactivation units
was 12%, 11% and 11%, respectively.
Five convenient deactivation configurations -- horizontal counter-mounted
slot scanners, a vertical mounted scanner, hand-held scanners, a weigh
scale scanner and a deactivation pad -- are available for a variety of POS
environments. Most of these units transmit an audible tone that alerts
the user that a target has been detected. The tone stops when the target
has been deactivated.
With the exception of the Counterpoint deactivation pad, all of the above
scanners read bar code information while deactivating hidden
Cheklink(R) targets in a single step. Ideal for high-volume environments,
these scanners mount easily at POS, and can deactivate multiple targets on
a single item.
The Counterpoint deactivation pad is placed at the check-out counter, and
targets are deactivated automatically by simply passing protected items
across the low profile pad which audibly signals that targets have been
deactivated. There is no need to see the targets in order to deactivate
them. Two sizes of the pads are available, both of which have a very low
profile on the counter top of 3/4" or less.
Targets
All targets contain an electronic circuit that unless deactivated
(disposable targets) or removed (reusable targets), triggers an alarm when
passed through the sensors. Customers can choose from a wide variety of
targets, depending on their merchandise mix. Targets can be applied
either in-store or at the point of manufacture.
Disposable Targets
Disposable security targets are affixed to merchandise by pressure
sensitive adhesive or other means. These range in size from 1.125" x 1.5"
to 2.0" x 3.0", enabling retailers to protect smaller, frequently-pilfered
items. Disposable targets must be deactivated at the point-of-sale,
either manually or electronically, or passed around the sensors.
Checkpoint provides labels compatible with a wide variety of standard
pricemarking/barcoding printers. Checkpoint's labels can be integrated
with printers from Sato, Zebra, Monarch, Printronix and Sobar. When used
with electronic deactivation equipment, they represent the Cheklink(R)
concept, developed to combine pricing, merchandising, data collection and
protection in a single step. Targets can be applied at the vendor level,
in the distribution center or in-store. Under the Company's Impulse(R)
program tags can be embedded in products or packaging at the point-of-
manufacture or packaging. For fiscal years 1994, 1993, and 1992, the
percentage of the Company's net revenues from disposable targets was 29%,
30% and 32%, respectively.
In 1992, the Company was licensed to sell and provide targets in roll form
for the Model 4021 label applicator (Pathfinder(R)) printer manufactured
by Monarch Marking Systems. This product is a sophisticated electronic
portable bar code label printer and applicator ideal for use in high
volume mass merchandise, drugstore and supermarket applications. In
addition, Pathfinder has a self-contained keyboard which allows for easy
entry of various types of label data including: bar code, price and size.
The Pathfinder also has built-in scanning capability that can scan
existing package bar codes, then print identical Checkpoint labels for
application without obscuring important product information.
The Company has entered into a business agreement with Hobart Corporation,
a manufacturer and distributor of weigh scales, label printers and meat
wrappers used in supermarket meat rooms. The Company's Hobart tag, 1315
Series, is compatible with the Hobart weigh scales Model 5000 T/TE and
Model 18VP. This labor-saving tag is integrated with the Hobart Weigh
Scale/Printer to display the weight and price of the item.
In addition, the Company has an agreement with A&H Manufacturing, the
dominant U.S. supplier of costume jewelry cards, which grants A&H the
right to embed Checkpoint targets in cards during manufacturing.
Reusable Targets
Reusable security targets fall into two categories. Flexible targets are
plastic-laminated tags used in a variety of markets that are removed at
the point-of-sale. Hard targets consist of a target and a locking
mechanism within a plastic case. They are used primarily in the apparel
market and present a visible psychological deterrent. Both flexible and
hard targets use a nickel-plated steel pin which is pushed through the
protected item with a magnetic fastener. These targets can also be
attached with a lanyard using the magnetic fastener. An easy-to-use
detacher unit removes reusable targets from protected articles without
damage. For 1994, 1993, and 1992, the percentage of the Company's net
revenues from reusable targets was 12%, 12% and 8%, respectively.
The Company also supplies the UFO hard target. The UFO hard target design
combined with a superior locking device makes the UFO, in the opinion of
the Company's management, a difficult hard target to defeat. The UFO tag,
due to its patented design, combines a unique conical shape with an
interior antenna which, due to its placement at an angle, provides a tag
which can be detected in the system better than tags in which the interior
antenna is placed in a flat position. During 1993, the Company began
manufacturing the Teardrop hard target, which is made to function only
with the QS1500 and QS1600 systems, primarily used in the apparel market.
During 1993, the Company also introduced a line of fluid tags marketed
under the name ChekInk(R) which provides a cost-effective second line of
defense against shoplifters. Unauthorized removal of these targets will
cause sealed vials of dye to break open, rendering the garment unusable.
ChekInk serves as a practical alternative to chaining down valuable
merchandise. Ideal for use in department stores, mass merchandisers, and
sporting goods stores, ChekInk can be removed quickly and easily at check-
out in the same manner as the reusable targets.
During 1994, the Company entered into a business agreement with MW Trading
ApS, a manufacturer and distributor of home entertainment security
products, to license and manufacture these products for the North and
South American marketplace.
Access Control Systems
The electronic access control Threshold(R) product line consists of seven
systems, ranging from small, relatively simple systems, to large,
sophisticated systems which provide a maximum degree of control,
monitoring and reporting. For fiscal years 1994, 1993, and 1992, the
percentage of the Company's net revenues from access control systems was
5%, 5% and 6%, respectively.
The Threshold product line features a Distributed Network Architecture
(TM)which means no single point of failure can affect the entire system.
These systems are capable of controlling up to 500 doors for access
control and up to 50,000 cardholders. The incorporation of alarm
monitoring and point control (i.e. turning lights on or off) are also
integral features of all seven Threshold systems.
The use of Threshold Remote Software Package allows the connection of
controllers from anywhere in the country via telephone lines. This
functionality opens major markets for communications, utilities and large
scale customers with remote facilities to manage.
All electronic access control systems can also monitor other occurrences,
such as a change in the status of environmental systems, motors, safety
devices or any controller with a digital output. While monitoring these
controllers, any output can, by a pre-programmed decision, cause an alarm
to sound or another event to occur.
The Company has several proprietary proximity card/tag and reader systems
for all environments. The Mirage(R) family of readers provides the
fastest card verification in the industry and the release of the Mirage
SGR allows these readers to be directly mounted on metal without
degradation in performance. The Mirage SG provides the same read
performance in a smaller more aesthetically pleasing package.
The proximity cards are comprised of a custom-integrated circuit implanted
in a plastic card or key tag which is powered by RF energy transmitted
from a reader unit located at the entrance to a controlled door. Access
is gained after a reader controller unit verifies a code transmitted by
the card. The proximity card cannot be copied or duplicated due to the
use of a programmed integrated circuit. In addition, a Mirage reader unit
can be protected from environmental damage or vandalism by installing it
inside a wall or behind a glass window. A Mirage reader unit is usable
throughout the Threshold product line.
POS Monitoring Systems
In December 1991, the Company licensed the worldwide rights to a POS
monitoring system that is marketed under the name Viewpoint(R). Viewpoint
records and stores on videotape every transaction at each check-out, both
the visual and the individual transaction data. Viewpoint connects
directly to the point-of-sale network using a PC compatible computer and
fixed CCTV cameras usually mounted inside domes affixed to a retailer's
ceiling. Because all transaction data is stored in the computer's
relational data base, user-generated reports can match questionable
transactions to events recorded on the tape. The system also features a
remote dial-in capability that allows users to monitor multiple store
locations from one site, significantly lowering personnel costs.
Viewpoint can be linked to Checkpoint EAS systems in order to record
incidents that have caused the EAS system to register an alarm. For fiscal
years 1994, 1993, and 1992, sales for both Viewpoint and CCTV represented
less than 3% of the Company's net revenues.
Principal Markets, Distribution, and Marketing Strategy
-------------------------------------------------------
The Company markets its products primarily to retailers in the following
market segments: hard goods (supermarkets, drug stores, mass merchandiser
and music/electronics) and soft goods (apparel). The Company is a market
leader in the supermarkets, drugstores and mass merchandiser market
segments with such customers as Caldor, Lucky's Grocery, Ralph's, Rite-
Aid, Target and Walgreens.
In early 1995, the Company acquired Alarmex which designs and provides
CCTV, POS monitoring and fire alarm systems to over 9000 retail sites in
the U.S.
The Company believes the acquisition of Alarmex complements the Company's
current CCTV and POS monitoring products. With the acquisition of Alarmex,
the Company is able to offer its customers a broader and more
sophisticated range of CCTV and POS monitoring products. In addition, the
acquisition of Alarmex enables the Company to enter the burglar and fire
alarm market with related central station alarm monitoring capabilities.
The U.S. Department of Commerce estimates that over 15% of retail costs
are attributable to inventory "shrinkage" (the value of goods which are
not paid for). Shrinkage is caused primarily by shoplifting and employee
theft. Industry sources estimate that shrinkage is a $30 billion annual
problem for the U.S. retail industry and a concern of at least a
comparable magnitude throughout the rest of the world.
Sophisticated data collection systems (primarily bar-code scanners)
available to retailers have highlighted the shrinkage problem and,
consequently, retailers now realize that the implementation of an
effective electronic security system can significantly increase
profitability. Accordingly, the retail industry is becoming increasingly
focused on theft prevention.
Industry sources estimate there are approximately 330,000 major retail
locations in the United States that would benefit from the installation of
an EAS system and the Company estimates that less than one-third of these
locations have installed systems. The Company believes, moreover, that in
the hard goods market less than 10% of such sites are EAS protected. While
industry sources expect the growth of EAS systems in the retail soft goods
market to be about 5% to 10% annually, the retail hard goods market is
expected to grow at approximately 20% per year over the next five years,
thus providing an even more significant growth opportunity.
Retailers generally apply the targets used in EAS systems at the retail
site. Retailers have expressed interest in moving the insertion or
application of the targets to the point of manufacture ('source tagging').
Manufacturers have been receptive to source tagging in light of the
potential increase in product volume (that is, more sales at the retail
level due to easier customer access to products). According to one
fragrance manufacturer's study, self-service fragrance sales are 60%
greater than sales of products kept under lock and key. In addition, a
study, conducted for the Company by Management Horizons, a division of
Price Waterhouse, reported that consumers made to wait in line or search
for a salesperson to buy batteries or camera film are likely to forego the
purchase. The Company believes that source tagging provides retailers,
manufacturers and retail customers with distinct benefits, principal among
which are: enhanced protection from theft, activation and deactivation
without the need for special training of store employees, more open
display of merchandise resulting in increased sales for manufacturers and
reduced costs for retail products.
In order to interact more closely with retailers and better understand and
respond to their needs (including reducing shrinkage and providing
retailers with enhanced sales opportunities through more open display of
merchandise), the Company is pursuing the following strategies:
- Expanding its direct sales and service capabilities in strategic
geographic areas;
- Broadening its product lines;
- Increasing its penetration of the hard goods retail market
(currently estimated to be less than 10% penetrated by the EAS
industry);
- Continuing to promote source tagging;
- Continuing to improve the Company's highly integrated and state-of-
the-art manufacturing processes and technologies; and
- Continuing to explore strategic acquisitions or start-up
opportunities in the following areas: international direct
distribution, a second source of manufacturing capacity and product
line diversification within the Company's core businesses.
The Company promotes its products primarily through(i) comprehensive tag
and equipment sales and product brochures, (ii) emphasizing environmental
benefits by promoting reduced packaging through source tagging, (iii)
extensive trade show participation and (iv) targeting specific retail
markets that offer substantial opportunity for growth (i.e.,
supermarkets).
Strategies to increase acceptability of source tagging are to (i)
intensify vertical market focus into key product segments where RF
technology is the only logical choice, such as liquors; (ii) expand source
tagging activities into international markets; (iii) increase staffing for
source tagging efforts supporting manufacturers and suppliers to speed
implementation; and (iv) expand RF target products to accommodate more
packaging schemes.
Distribution
------------
EAS Systems
The Company sells its EAS systems principally throughout North America and
Europe. During 1994, EAS revenues from outside the United States
(principally Europe and Scandinavia) represented approximately 39% of the
Company's net revenues.
In the United States, the Company markets its EAS products through its own
sales personnel, independent representatives and independent dealers.
Independent dealers accounted for less than 1% of the Company's net
revenues in the United States during 1994. The Company, at December 25,
1994, employed 79 salespeople who sell the Company's products to the
domestic retail market and who are compensated by salary plus commissions.
The Company's independent representatives sell the Company's products to
the domestic library market on a commission basis. At the end of 1994,
the Company had 27 such independent representatives. Three members of the
Company's sales management staff are assigned to manage and assist these
independent representatives. Of total EAS domestic revenues during 1994,
92% was generated by the Company's own sales personnel.
Internationally, the Company markets its EAS products principally through
various foreign subsidiaries which sell directly to the end user and
through independent distributors. The Company's foreign subsidiaries, as
of December 25, 1994, employed a total of 102 salespeople who sell the
Company's products to the retail and library markets. The Company's
international sales operations are currently located in Western Europe,
Canada, Mexico, Argentina and Australia ("see Marketing Strategy").
Until 1993, the Company's sales in Western Europe were made principally
through distributors. In mid 1993, the Company acquired a competing EAS
company in Western Europe. In 1994, the European market was characterized
by intense price competition as competitors endeavored to retain market
shares.
Independent distributors accounted for 21% of the Company's international
revenues during 1994. Foreign distributors sell the Company's products to
both the retail and library markets. The Company's distribution
agreements generally appoint an independent distributor for a specified
term as an exclusive distributor for a specified territory. The
agreements require the distributor to purchase a specified dollar amount
of the Company's products over the term of the agreement. The Company
sells its products to independent distributors at prices significantly
below those charged to end-users because the distributors make volume
purchases and assume marketing, customer training, maintenance and
financing responsibilities.
Access Control Systems
The Company's electronic access control sales personnel, together with
manufacturers' representatives, market its electronic access control
products to approximately 150 independent dealers. The Company employs
five salespeople who are compensated by salary plus commissions. The
Company's one manufacturer's representative is compensated solely by
commissions. Under the independent dealer program, the dealer takes title
to the Company's products and sells them to the end-user customer. The
dealer installs the systems and provides ongoing service to the end-user
customer.
POS Monitoring Systems/CCTV
The Company markets the POS monitoring products throughout the world
through its own sales personnel. Sales of the POS monitoring products are
sold to the Company's existing EAS retail customers along with those
retailers that currently do not have the Company's EAS products.
Salespeople
-----------
The Company presently employs approximately 180 salespeople.
They are an experienced, effective sales force and one of the Company's
most important assets. On the average, the sales people have over four
years experience in the industry. The Company invests heavily in sales
training programs and experiences little turnover among its top
performers.
Backlog
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The Company's backlog of orders was approximately $7,053,000 at December
25, 1994, as compared with approximately $6,673,000 at December 26, 1993.
The Company anticipates that substantially all of the backlog at the end
of 1994 will be delivered during 1995. In the opinion of management, the
amount of backlog is not indicative of intermediate or long-term trends in
the Company's business. The Company's business generally follows the
retail cycle so that revenues are weighted toward the last half of the
calendar year as retailers prepare for the holiday season.
Technology
----------
The Company believes that its patented and proprietary technologies are
important to its business and strategies for growth and provide it with
distinct competitive advantages. The Company holds or licenses over 200
patents and proprietary technologies relating to its products and their
manufacture. Substantially all of the Company's revenues were derived
from products or technologies which are patented or licensed. The
Company's competitive position is supported by its extensive manufacturing
experience and know-how and, to a lesser degree, its technology and
patents. There can be no assurance, however, that a competitor, including
Sensormatic, could not develop a product comparable to that of the
Company.
EAS
The Company is the exclusive worldwide licensee of Arthur D. Little, Inc.
("ADL") for certain patents and improvements thereon related to EAS
products and manufacturing processes. The Company pays a royalty to ADL
ranging from 2% to 5% of net revenues generated by the sale and lease of
the licensed products, with the actual amount of the royalty depending
upon revenue volume.
Royalties amounted to approximately 1.8% of EAS net revenues for each of
the years, 1994, 1993 and 1992. The term of the license is coterminous
with the patents, the first of which expired in 1991 and the last of which
will expire in 2007. In addition, the Company has other less significant
licenses covering certain sensors, magnetic labels and fluid tags. These
licenses arrangements have various expiration dates and royalty terms.
Electronic Access Control
The Company is the worldwide licensee of certain patents and technical
knowledge related to proximity card and card reader products. It pays a
royalty equal to 2% of the net revenues from the licensed products. Such
royalties are payable through January 29, 2000, or until all of the
subject patents have been adjudicated invalid.
Royalty expense for fiscal years 1994, 1993 and 1992 was approximately .6%
of the Company's electronic access control net revenues.
POS Monitoring Systems/CCTV
The Company has a worldwide license to distribute a point-of-sale front-
end monitoring system being marketed under the name Viewpoint. Marketing
of this product began during 1992. The Company pays a one time site
license fee for each site installed.
Manufacturing, Raw Materials and Inventory
------------------------------------------
EAS
The Company manufactures most of its products in state-of-the-art
facilities located in Puerto Rico and the Dominican Republic and has a
highly integrated manufacturing capability. The Company's manufacturing
strategy is to rely primarily on in-house capability and to vertically
integrate manufacturing operations to the extent economically practical.
This integration and in-house capability provides significant control over
costs, quality and responsiveness to market demand which results in a
distinct competitive advantage.
As part of its total quality management program, the Company practices
concurrent engineering techniques in the design and development of its
products involving engineering, manufacturing, marketing and customers
early in the development process.
Management of the Company believes that it has the manufacturing
capability to satisfy its projected production needs in the foreseeable
future. While the Company sold over 950 million disposable RF targets in
1994, it has the current manufacturing capacity to produce as many as
three billion disposable RF targets per year at a low cost. In addition,
with the expenditure of approximately $2.5 million, the Company could
increase its capacity to produce as many as eight billion disposable RF
targets annually.
The Company purchases raw materials from outside suppliers and assembles
electronic components for the majority of its sensor product lines at its
facilities in Puerto Rico. For its target production, the Company
purchases raw materials and components from outside sources and completes
the manufacturing process at its facilities in Puerto Rico (disposable
targets) and the Dominican Republic (reusable targets). Certain
components of sensors are manufactured at the Company's facilities in the
Dominican Republic and shipped to Puerto Rico for final assembly. The
principal raw materials and components used by Checkpoint in the
manufacture of its targets are electronic components for its systems,
aluminum foil, resins, and paper used for its disposable tags, ferric
chloride solutions for the Company's etching operation of disposable tags
and printed circuit boards. While most of these materials are purchased
from several suppliers, there are numerous alternative sources for all
such materials. In general, there is an adequate supply of raw materials
to satisfy the needs of the industry. The Company's general practice is
to maintain a level of inventory sufficient to meet anticipated demand for
its products.
Access Control Systems
The Company purchases raw materials from outside suppliers and assembles
the electronic components for controllers, proximity cards and proximity
readers at its facilities in the Dominican Republic and Puerto Rico. For
non-proximity electronic access control components, the Company
subcontracts manufacturing activities. All electronic access control
final system assembly and testing is performed at the Company's facilities
in Thorofare, New Jersey.
POS Monitoring Systems/CCTV
The Company does not manufacture any of the components for the Viewpoint
product line other than small interface circuit boards. The Company
purchases all the hardware components of the Viewpoint products from major
distributors. Limited inventory levels are maintained since the Company
places orders with these distributors as customer orders are received.
The software component of the system is added at the customer's site.
The acquisition of Alarmex provides the Company with facilities and
expertise dedicated to CCTV systems.
Competition
-----------
EAS
Currently, EAS systems are sold to two principal markets: retail
establishments and libraries. The Company has one principal global
competitor - - Sensormatic Electronic Corporation ("Sensormatic").
Sensormatic, a fully integrated supplier of electronic security systems to
retail and other markets, has a dominant market share of the electronic
security systems industry, with approximately 68% of the global market for
electronic security systems. Management estimates that the Company's
market share in the EAS industry is approximately 15%. With revenues of
approximately $656.0 million for its most recent fiscal year, Sensormatic
has economic and other resources substantially greater than those of the
Company.
Within the U.S. market additional competitors included Knogo North
America, Inc.("Knogo"), principally in the retail market, and Minnesota
Mining and Manufacturing Company, principally in the library market.
Within the Company's international markets, mainly Western Europe, Actron
AG, ("Actron"), a subsidiary of ADT. Inc., Knogo (whose international
operations were purchased by Sensormatic on December 29, 1994)and Esselte
Meto, along with Sensormatic, are the Company's most significant
competitors. The markets served by the Company and its competitors is
price sensitive. In 1994, the Western European markets were characterized
by intense price competition as participants adjusted prices to retain
market shares. This price competition is expected to continue through
fiscal year 1995.
The Company's product line offers more diversity than its competition in
protecting different kinds of merchandise with soft disposable targets and
hard and flexible reusable targets, all of which operate with the same RF
system. As a result, the Company believes it appeals to a wider segment
of the market than does its competition and competes in marketing its
products primarily on the basis of their versatility, reliability,
affordability, accuracy and integration into operations. This combination
provides many system solutions which allow for protection of various kinds
of merchandise from theft.
Electronic Access Control
The Company's electronic access control products compete with other
manufacturers of electronic access control systems as well as with
conventional security systems.
Major competitors are Cardkey Systems, Inc., Software House, Inc. and
Westinghouse Security, Inc. All three competitors are subsidiaries of
much larger companies that have substantially greater resources than the
Company. The Company believes that its products offer higher reliability
than those of its competitors.
POS Monitoring Systems/CCTV
The Company's POS Monitoring products compete primarily with similar
products offered by Sensormatic and Knogo. The Company believes that its
products represent a technological advancement over those of its
competitors, particularly with respect to recording and retrieval of
transaction information.
Research and Development
The Company has increased its research and development activities during
the past four years over the prior levels. The Company expended
approximately $4,877,000, $5,392,000 and $4,498,000 in research and
development activities during 1994, 1993 and 1992, respectively. The
emphasis of these activities is the continued broadening of the product
lines offered by the Company and an expansion of the markets and
applications for the Company's products. The Company's continued growth in
revenue can be attributed, in part, to the products and technologies
resulting from these efforts.
Another important source of new products and technologies has been
the Company's acquisitions of companies and products during the last few
years. The Company is expected to make acquisitions of related businesses
or products consistent with its overall product and marketing strategies.
Over the last three years, the Company has introduced 43 new products.
Currently, the Company has under development approximately 60 product
development or enhancement projects. In addition, the Company holds or
licenses over 200 patents and proprietary technologies relating to its
products and their manufacture.
Employees
---------
As of December 25, 1994, the Company had 1,804 employees, including nine
officers, 61 persons engaged in research and development activities and
196 persons engaged in sales and marketing activities. None of the
Company's employees are represented by a union.
Financial Information About Domestic and Foreign Operations
-----------------------------------------------------------
The following table sets forth certain information concerning the
Company's domestic and foreign operations for each of the last three
fiscal years. Geographic Area 1994 1993 1992
=============== ==== ==== ====
(Thousands)
Net revenues from From United States $88,211 $71,834 $72,166
unaffiliated and Puerto Rico
customers
Net revenues from Western Europe, $40,120 $21,200 $ -
foreign subsidiaries Canada, Mexico,
Argentina, and
Australia
Export net revenues Primarily Europe $10,430 $12,163 $22,732
and Scandinavia
Domestic earnings From United States, $ 6,931 $ 1,720 $ 4,891
before income taxes Puerto Rico, and
Dominican Republic
Foreign earnings Western Europe, $ 1,446 $ 351 $ -
before income taxes Canada, Mexico,
Argentina and
Australia
Domestic identifiable In United States, $92,285 $78,982 $74,333
assets Puerto Rico, and
Dominican Republic
Foreign identifiable Western Europe, $35,640 $26,017 $ -
assets Canada, Mexico,
Argentina, and
Australia
Item 2. PROPERTIES
The Company's headquarters and distribution center are in leased
facilities located in Thorofare, New Jersey. Of the total 104,000 square
feet, approximately 64,000 square feet are used for office space and
approximately 40,000 square feet are used for storage facilities. The
Company has entered into a twelve year lease for the facilities starting
in 1995. The annual rent during each year of the first five years
starting in 1995 is $692,000.
The Company's principal manufacturing facility for the production of most
of its products is located in Ponce, Puerto Rico. This two-story
building, which was completed in 1990, is owned by the Company and
contains approximately 95,000 square feet. Included in the 95,000 square
feet is approximately 11,000 square feet of office space and approximately
14,000 square feet of warehouse space. In addition, the Company leases a
manufacturing and development facility in Puerto Rico near the
manufacturing facility containing approximately 9,000 square feet. The
lease expires in 1997 with an annual rent of $31,000.
The Company also leases two manufacturing facilities in the Dominican
Republic. One facility, located in La Vega, contains approximately 33,000
square feet. It includes approximately 3,900 square feet of office space
and approximately 3,000 feet of warehouse space. Certain components of
the Company's sensors, hard targets and proximity cards are assembled at
this site. The lease for this property expires in December 2005 with an
annual rent of $17,550. The other facility, located in Los Alcarrizos,
contains approximately 34,000 square feet. It includes approximately
1,800 square feet of office space and approximately 10,000 square feet of
warehouse space. This facility performs the bending, chroming and wiring
of antenna loops used in the Company's Quicksilver sensor products. This
facility also performs certain injection molding production used in the
assembly of the Company's reusable security targets. The lease for the
Los Alcarrizos property expires in December 2001 with an annual rent of
$30,000. The leases for both locations have been prepaid for their entire
terms.
The Company's foreign subsidiaries maintain various sales and distribution
locations in Australia, Argentina, Belgium, Canada, France, Germany,
Mexico, The Netherlands, Sweden and United Kingdom. The locations have an
average of 3,600 square feet of office space and an average of 1,800
square feet of warehouse space. The lease terms of these foreign
subsidiaries range from one to five years with an average lease payment of
$34,200 in 1995.
Item 3. LEGAL PROCEEDINGS
On March 10, 1993, the United States International Trade Commission
("Commission") instituted an investigation of a complaint filed by the
Company under Section 337 of the Tariff Act of 1930. The complaint, as
amended, alleged that six respondents imported, sold for importation, or
sold in the United States after importation certain anti-theft
deactivatable resonant tags and components thereof that infringed certain
U.S. Letters Patents of which the Company is exclusive licensee. The
Commission's notice of investigation named six respondents, each of whom
was alleged to have committed one or more unfair acts in the importation
or sale of components or finished tags that infringe the asserted patent
claims. Those respondents are: Actron AG; Tokai Denshi Co. Ltd.; ADT,
Limited; All Tag Security AG; Toyo Aluminum Ltd.; and Custom Security
Industries, Inc.
On March 10, 1994 the United States International Trade Commission issued
a Notice of Commission Determination Not to Review an Initial
Determination Finding No Violation of Section 337 of the Tariff Act of
1930. The Company has capitalized approximately $1.9 million in patent
defense costs, which is included in 'Intangibles' as of December 25, 1994.
The ultimate resolution is undetermined at this time due to the various
courses of action available to management. The Company has appealed this
determination to the appropriate United States Court of Appeals. Although
the Company's management ultimately expects a favorable outcome, should
resolution of this matter result in a less than successful defense of the
patents in question the deferred patent costs(approximately $1.9 million
at December 25, 1994) will be written off as a charge to earnings at the
time of such resolution.
The Company, together with two of its senior officers, are defendants in
an action entitled ADT, Inc. and Actron AG v. Checkpoint Systems, Inc. and
Albert E. Wolf and Kevin P. Dowd (D.C.N.J.#95-730) which was filed on
February 9, 1995.
In this action, Actron AG, one of the Company's principal European
competitors, alleges that the Company, in violation of certain common laws
and contractual obligations (1) unlawfully employed in Europe three former
employees of Actron who allegedly are in possession of, and have disclosed
to the Company, certain of Actron's confidential information, (2) has
attempted to employ in Europe certain other of Actron's current
employees,(3) has interfered with certain contractual relationships
between Actron, its former employees, and the supplier of Actron's
disposable EAS tags and (4) has, in allegedly engaging in the activities
complained of, committed acts of unfair competition. The Court has set a
date in early April 1995 to hear arguments on the Company's motion to
dismiss the complaint and has also set a date in mid April 1995 to hear
testimony and arguments relating to Actron's motion to enjoin the Company
from allegedly using Actron's confidential information. Discovery by both
parties has commenced. The Company intends to defend itself vigorously.
While the outcome of litigation can never be predicted with certainty and
the lawsuit is still in its very preliminary stages, the Company does not
anticipate that its ultimate outcome will have a material effect on its
operations or financial condition.
On March 2, 1995, as a result of a private complaint filed in Switzerland
by Actron against three of its former employees who are now employees of
the Company's Swiss subsidiary, Swiss authorities questioned two of these
employees regarding alleged improper possession and/or use of confidential
information and proprietary data allegedly belonging to Actron. In
addition, Swiss authorities took possession of certain files from the
homes of the employees questioned and from the office of the Company's
Swiss subsidiary. The Company has not been advised that it is the subject
of any legal proceeding in Switzerland. The Company believes that
Actron's private complaint (and the resultant actions of the Swiss
authorities) are directly related to the Company's litigation with Actron
as described above.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1994 to a vote of
security holders.
Item A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain current information concerning the
executive officers of the Company, including their ages, position and
tenure as of the date hereof:
OFFICER
NAME AGE SINCE POSITIONS WITH THE COMPANY
Kevin P. Dowd 46 1988 President, Chief Executive Officer,
Chief Operating Officer, and Director
Luis A. Aguilera 46 1982 Senior Vice President - Manufacturing
Steven G. Selfridge 39 1988 Senior Vice President - Operations,
Chief Financial Officer and Treasurer
Mitchell T. Codkind 35 1992 Corporate Controller and Chief
Accounting Officer
Muns A. Farestad 46 1990 Vice President - Research and
Development
William J. Reilly, Jr. 46 1989 Senior Vice President - Americas' and
Pacific Rim
Michael E. Smith 39 1990 Senior Vice President - Marketing and
Western European Operations
Neil D. Austin 48 1989 Vice President - General Counsel and
Secretary
Lukas A. Geiges 56 1995 Senior Vice President - International
Development of Checkpoint Systems
International B.V.
Mr. Dowd has been President, Chief Executive Officer and a director of the
Company since January 1, 1995 and President and Chief Operating Officer of
the Company since August 1993. He was Executive Vice President of the
Company from May 1992 to August 1993. Mr. Dowd was Executive Vice
President - Marketing, Sales and Service from April 1989 to May 1992 and
Vice President of Sales from August 1988 to April 1989. Prior to joining
the Company, Mr. Dowd was Director - Industrial Products Group, Mars
Electronics from January 1987 to July 1988.
Mr. Aguilera has been Senior Vice President - Manufacturing since August
1993. He was Vice President - Manufacturing of the Company from April
1982 to August 1993, and Vice President and General Manager of the
Company's Puerto Rico subsidiary since February 1979.
Mr. Selfridge has been Senior Vice President - Operations and Chief
Financial Officer and Treasurer since August 1993. He was Chief Financial
Officer and Vice President - Finance and Treasurer of the Company from
December 1990 to August 1993; and Vice President - Finance and Treasurer
of the Company since September 1989. Mr. Selfridge was Corporate
Controller, Chief Accounting Officer and Secretary from April 1988 to
September 1989 and Controller of Domestic Operations from July 1986 to
April 1988. Mr. Selfridge is a Certified Public Accountant.
Mr. Codkind has been Corporate Controller and Chief Accounting Officer
since January 1992. Mr. Codkind was Controller of Domestic Operations
from January 1990 to January 1992 and Accounting Manager of Domestic
Operations from June 1986 to January of 1990. Mr. Codkind is a Certified
Public Accountant.
Item A. EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Mr. Farestad has been Vice President - Research and Development since
October 1990. He was Director of Process Engineering and Shared Resources
from January 1989 to October 1990 and Director of Manufacturing
Engineering from July 1987 to January 1989.
Mr. Reilly has been Senior Vice President - Americas' and Pacific Rim
since August 1993. He was Vice President - Sales of the Company from
April 1989 to August 1993. Mr. Reilly was Eastern Regional Sales Manager
from March 1989 to April 1989. Prior to joining the Company, Mr. Reilly
was U.S. Sales Manager for Multitone Electronics PLC, London, U.K. from
1982 to 1989.
Mr. Smith has been Senior Vice President - Marketing and Western European
Operations since August 1993. He was Vice President - Marketing from
August 1990 to August 1993. Mr. Smith was Director of Marketing from
April 1989 to August 1990 and Program Manager - National/Major Accounts
from December 1988 to April 1989. Prior to joining the Company, Mr. Smith
was Marketing Manager with Mars Electronics International from June 1987
to November 1988.
Mr. Austin has been Vice President - General Counsel and Secretary since
September 1990. Mr. Austin was General Counsel and Secretary from
September 1989 to September 1990 and General Counsel from June 1989 to
September 1989. Prior to joining the Company, Mr. Austin was a managing
consultant with Mercer, Meidinger, Hansen Inc. from 1987 to 1989.
Mr. Geiges has been Senior Vice President - International Development of
Checkpoint Systems International B.V. since April 1994 and is considered
to be a person who makes a significant contribution to the Company's
business. Prior to joining the Company, Mr. Geiges was a consultant to
the Actron AG Board of Directors from 1993 to March 1994. Mr. Geiges was
President and Chairman of the Board with Actron AG, a member of the ADT
Group, from 1988 to 1993. Mr. Geiges has advised the Company that, on
March 2, 1995, he was questioned by Swiss authorities with respect to
alleged improper possession and/or use of proprietary data and
confidential information allegedly belonging to Actron AG, his former
employer. The Company is involved in litigation with Actron AG. See
"Legal Proceedings" above.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Common Stock of the Company is traded on the New York Stock Exchange
("NYSE") under the symbol CKP. Prior to October 29, 1993, the Company's
Common Stock was traded in the over-the-counter market on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ")
National Market System, under the symbol CHEK. The following table sets
forth for the indicated periods the closing price range of the Common
Stock as furnished by the NYSE and NASDAQ for the respective periods.
High Low
---- ---
Closing Price
1993:
First Quarter ............................ 20 1/8 8 3/4
Second Quarter ........................... 12 7/8 8 3/4
Third Quarter ............................ 11 3/4 8 1/8
Fourth Quarter ........................... 14 8 1/2
1994:
First Quarter ............................ 14 1/2 10 3/8
Second Quarter ........................... 17 1/4 12 3/4
Third Quarter ............................ 18 7/8 14 7/8
Fourth Quarter ........................... 21 1/2 16 3/8
As of February 21, 1995, there were approximately 1,549 record holders of
the Company's Common Stock.
The Company has never paid a cash dividend on the Common Stock, does not
anticipate paying any cash dividend in the near future and is limited by
existing covenants in the Company's debt instruments from paying
dividends. The declaration and payment of dividends in the future, and
their amounts, will be determined by the Board of Directors in light of
conditions then existing, including the Company's earnings, its financial
condition and requirements (including working capital needs) and other
factors.
Item 6. SELECTED ANNUAL FINANCIAL DATA
1994 1993 1992 1991 1990
======== ======== ======== ======== ========
(Thousands, except per share data)
FOR YEARS ENDED:
Net revenues $128,331 $ 93,034 $ 72,166 $ 52,943 $ 56,742
Earnings before
income taxes $ 8,377 $ 2,071 $ 4,891 $ 635 $ 6,707
Income taxes
(benefit) $ 2,094 $ 456 $ 463 $ 127 (225)
Net earnings $ 6,283 $ 1,615 $ 4,428 $ 508 $ 6,932
Earnings per
common share $ .58 $ .16 $ .45 $ .05 $ .72
AT YEAR-END:
Working capital $ 39,427 $ 27,984 $ 25,792 $ 14,245 $ 17,915
Long-term debt $ 35,556 $ 24,302 9,322 $ 783 $ -
Shareholders'
equity $ 61,303 $ 53,779 $ 51,061 $ 42,087 $ 41,321
Total assets $127,925 $104,999 $ 74,333 $ 57,675 $ 53,129
SELECTED QUARTERLY FINANCIAL DATA
QUARTERS (unaudited)
--------------------------------------------
First Second Third Fourth Year
----- ------ ----- ------ ----
(Thousands, except per share data)
1994
----
Net revenues $26,223 $28,656 $33,928 $39,524 $128,331
Gross profit $12,262 $13,552 $17,023 $19,134 $ 61,971
Net earnings $ 526 $ 1,067 $ 2,162 $ 2,528 $ 6,283
Earnings per
common share $ .05 $ .10 $ .20 $ .23 $ .58
1993
----
Net revenues $20,016 $18,026 $26,604 $28,388 $93,034
Gross profit $ 8,700 $ 6,880 $11,385 $11,648 $38,613
Net earnings $ 507 $ 884 $ 112 $ 112 $ 1,615
Earnings per
common share $ .05 $ .09 $ .01 $ .01 $ .16
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 7.
Overview
The Company is a designer, manufacturer and distributor of integrated
electronic security systems -- utilizing proprietary RF technologies --
designed primarily to help retailers prevent losses caused by theft of
merchandise. In fiscal year 1991, the Company's revenues declined 6.7%
from the prior fiscal year at a time of substantial growth in the
industry. As a result, the Company's current management adopted a new
strategy which focused on introducing new products to meet retailers'
needs, moving to direct distribution internationally through strategic
acquisitions increasing the number of direct sales and service personnel
and making substantial investments in its manufacturing facility in Puerto
Rico to increase its manufacturing capacity and further integrate the
manufacturing of its disposable targets. The costs associated with the
implementation of this strategy have been significant and have impacted
the Company's profitability. In management's opinion, however, these
investments have positioned the Company for the future.
Net Revenues
The Company's unit volume is driven by product offerings, number of direct
sales personnel, recurring revenues and, to some extent, prices. Since
1991, the Company's unit volume of sales has increased dramatically.
During that time the Company has introduced over 40 new products.
Increases in the Company's U.S. direct sales personnel and, through
various acquisitions, the establishment of a direct sales force in ten
other countries, have resulted in the Company's total sales force growing
to approximately 180 as of December 1994 as compared to 47 as of September
1991. In addition, sales of the Company's disposable targets and field
service revenues related to sensors and deactivation units provide a
significant and growing source of recurring revenues. The Company's
increasing base of installed systems also results in additional unit
volume. For fiscal year 1994, approximately 37% of the Company's net
revenues were attributable to sales of disposable targets and service to
its installed base of customers.
The Company's unique and proprietary product line has enabled it to
increase its domestic prices over the past four years. These price
increases, however, have been substantially offset by volume discounts
offered to national retailers. Internationally, in fiscal year 1993 prices
were favorably impacted by moving to direct sales in various countries. In
fiscal year 1994, however intense price competition in Western Europe
significantly impacted selling prices as competitors moved to protect
market shares. This price sensitivity in Western Europe in expected to
continue and perhaps intensify in 1995.
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview (continued)
Cost of Revenues
The principal elements comprising cost of revenues are product cost,
development cost and field and installation cost.
Across all of the Company's product lines, product costs average
approximately 40% of net revenues. The components of cost of revenues are
as follows: 74% -- material, 14% -- labor, and 12% -- manufacturing
overhead. The primary raw materials used in the manufacture of the
Company's products include electronic components for its systems, aluminum
foil, resins, and paper used for its disposable tags, ferric chloride
solutions for the Company's etching operation of disposable tags and
printed circuit boards. Although aluminum, resins and paper are subject to
some commodity pricing, in recent years the Company has generally been
able to offset price increases through volume purchasing and manufacturing
efficiencies.
The Company believes that its manufacturing know-how and efficiencies
relating to disposable and reusable tags give it a significant cost
advantage over its competitors. The Company expects volume increases to
result in a decrease of product cost as a percentage of net revenues
because of the Company's substantial available manufacturing capacity and
its ability to more broadly distribute its fixed manufacturing costs over
more units.
For fiscal year 1994, field service and installation costs approximated 8%
of net revenues and include ongoing product service costs and installation
costs. The Company believes that it has and will continue to make product
design changes which improve product performance and result in easier
installation, thereby reducing these costs as a percentage of net
revenues.
Selling, General and Administrative Expenses
For fiscal year 1994, sales, marketing and customer service comprised
approximately 60% of all selling, general and administrative expenses.
Selling, general and administrative expenses have increased significantly
due to an expansion of the Company's sales force both domestically and
internationally (through acquisitions) from a September 1991 sales force
of 47 people to a December 1994 sales force of approximately 180. During
this same period, significant investment was also made in the
establishment of a multifaceted product management team and a
professional customer service organization.
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Overview (continued)
Taxes
The Company's net earnings generated by the operations of its Puerto Rican
subsidiary are exempt from Federal income taxes under section 936 of the
Internal Revenue Code ('Section 936') and are substantially exempt from
Puerto Rican income taxes. As a result, the Company's effective tax rate
for fiscal 1994 was 25%. Changes to Section 936 resulting from the Revenue
Reconciliation Act of 1993 are not expected to have an impact on the
Company's tax status from earnings generated by the operations in Puerto
Rico as a result of substantial investments made by the Company in
property, plant and equipment combined with the large workforce currently
employed by the Company at the facility. The Company anticipates that its
effective tax rate may increase in fiscal year 1995 and beyond due to (i)
increased net income due to the acquisition of Alarmex and other possible
acquisitions, (ii) a change in U.S. tax laws resulting in a partial tax on
Section 936 earnings, whether or not such earnings are repatriated and
(iii) additional taxable income attributable to foreign jurisdictions
where tax rates may be marginally higher than in the U.S.
Exposure to International Operations
Prior to fiscal year 1993, substantially all the Company's international
sales were made to distributors and were paid in U.S. dollars. As a result
of the Company's strategy to increase its direct sales to customers (as
opposed to sales through independent distributors), approximately 79.4% of
the Company's international sales for fiscal year 1994 were made in local
currencies. This increase in sales denominated in currencies other than
U.S. dollars increases the Company's potential exposure to currency
fluctuations which can adversely affect results. During fiscal year 1994,
currency exchange losses amounted to $762,000 compared to losses of
$327,000 for fiscal year 1993. The primary increase in the currency
exchange losses from 1993 and 1994 was the result of the devaluation of
the Mexican peso in late 1994. As a result of the peso devaluation and
continued difficulties in Mexico, the Company's operations in Mexico could
be negatively impacted during fiscal year 1995 but this is not expected to
materially affect the Company's consolidated results.
The Company sells product for international sales to its international
subsidiaries. The subsidiaries, in turn, sell these products to customers
in their respective geographic areas of operation 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.
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
In order to reduce the Company's exposure resulting from currency
fluctuations the Company has been purchasing currency exchange forward
contracts on a regular basis. These contracts guarantee a predetermined
exchange rate at the time the contract is purchased. This allows the
Company to shift the risk, whether positive or negative, of currency
fluctuations from the date of the contract to a third party. As of
December 25, 1994 the Company had currency exchange forward contracts
totaling approximately $8.8 million. The contracts are in the various
local currencies covering the Company's six Western European operations.
The Company's operations in Canada, Argentina, Mexico and Australia were
not covered by forward exchange contracts at December 25, 1994.
The Company is considering increasing the amount of currencies covered by
forward exchange contracts during fiscal year 1995. In addition, the
Company is evaluating the use of currency options in order to reduce the
impact that exchange rate fluctuations have on the Company's gross margins
for sales made by the Company's international operations. The combination
of forward exchange contracts and currency options should result in
reducing the Company's risks associated with significant exchange rate
fluctuations.
Seasonality
The Company's customers are substantially dependent on retail sales which
are seasonal and subject to significant fluctuations which are difficult
to predict. The Company's sales are impacted by such seasonality and
fluctuations. Historically, the Company has experienced lower sales in
the first and second quarters of each year.
First Quarter 1995
Based upon the Company's sales in January and February 1995 and other
factors, the Company currently believes that its results of operations for
the first quarter of 1995, excluding the impact of the Alarmex Acquisition
will be approximately breakeven or a slight loss. The Company also
estimates that interest and amortization expenses and other charges and
expenses related to the Alarmex Acquisition, to the extent not fully
absorbed by Alarmex's revenues, could adversely impact earnings by up to
an additional $0.03 per share for the first quarter of fiscal 1995.
Anticipated first quarter 1995 sales will be affected by normal seasonality
and stronger than expected shipments in December 1994. Expected results
also reflect planned increases in expenses to support anticipated growth in
the Company's business. Increased planned expenses over the first quarter
of fiscal year 1994 include an increase of approximately $2 million in
selling, general and administrative expenses and increased interest on
higher debt incurred to finance expansion of the Company's business. The
charges and expenses attributable to the Alarmex Acquisition include
increased expenses related to inventory write-ups required by purchase
accounting which will be charged over the first two quarters of fiscal
1995 as this investory is sold, increased interest expense on debt
incurred to finance the acquisition and refinance existing Alarmex debt
and amortization of intangibles, including goodwill, arising from the
acquisition.
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
---------------------
For the Year Ended December 25, 1994
------------------------------------
Overview
In fiscal year 1994, the Company began to realize the full
impact of acquisitions completed and new products introduced in fiscal
year 1993. Net revenues increased by approximately $35.3 million over
fiscal year 1993. Continued improvements in the cost of revenues as a
percentage of net revenues resulted in a significant increase in
incremental gross profit from that obtained in fiscal year 1993. This
improvement was driven primarily by increased efficiencies in
manufacturing (achieved through (i) closure of a high cost European
manufacturing operation, (ii) improvement in manufacturing efficiencies of
existing as well as newer generation products introduced in 1993 and (iii)
higher unit volumes (contributing significantly to more efficient overhead
absorption)) in Western Europe as a result of Company-sponsored direct
sales activities (offset, however, by significant price reductions as a
result of intense price competition). These factors combined to produce
operating income of approximately $11.7 million during fiscal year 1994
compared to an operating loss of $.6 million in fiscal year 1993.
Net Revenues
Net revenues increased $35.3 million (or 37.9%) over fiscal year 1993
(from $93.0 million to $128.3 million). Domestic and international net
revenues accounted for approximately 60.6% and 39.4%, respectively, of
total net revenues compared to 64.1% and 35.9% in fiscal year 1993.
Domestic EAS net revenues increased $17.1 million (or 31.3%) primarily as
a result of increased unit sales. In addition, higher prices in certain
product offerings and increases in recurring service revenues also
contributed to the increase. International EAS net revenues increased
$17.2 million (or 51.5%) primarily as a result of higher prices received
by the Company as a result of direct sales as compared to selling through
distributors. However, during fiscal year 1994 the Company's operations
in Western Europe were significantly impacted by severe price competition
as a result of ongoing efforts by competitors in that area to retain their
respective market shares. These price reductions negatively impacted the
Company's earnings from its international operations by approximately $3
million. This price competition is expected to continue and possibly
intensify through fiscal year 1995.
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
---------------------
For the Year Ended December 25, 1994(continued)
----------------------------------------------
Cost of Revenues
Cost of revenues increased approximately $12.0 million (or 21.9%) over
fiscal year 1993 (from $54.4 million to $66.4 million). As a percentage of
net revenues, however, cost of revenues decreased 6.8% (from 58.5% to
51.7%) compared to fiscal year 1993 primarily due to (i) increased
production volumes resulting in favorable overhead absorption combined
with greater manufacturing efficiencies, (ii) the relocation of European
production into lower cost Caribbean based facilities and (iii) increased
manufacturing efficiencies of existing as well as newer generation
products introduced in fiscal year 1993. Combined, these items resulted in
lowering production cost as a percentage of revenues by 1.8% (from 41.7%
to 39.9%). Lower spending on research and development from the prior year
(from $5.4 million to $4.9 million) as a result of the completion of new
products during the past several years also contributed to reducing costs
as a percentage of revenues by 2.0%. In addition, the Company's service
costs were positively impacted by the introduction of new deactivation
products, Counterpoint IV and V, with their increased deactivation heights
thereby reducing the frequency of customers' failure to deactivate
disposable labels. Increased service revenues without the cost for
proportionately greater service personnel resulted in reducing service
costs as a percentage of revenues by 3.0%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $11.0 million
(or 28.1%) over fiscal year 1993 (from $39.2 million to $50.2 million).
As a percentage of net revenues, however, selling, general and
administrative expenses decreased by 3.0% (from 42.2% to 39.2%). The
higher expenses (in dollars) were due to (i) increases in variable
selling expenses resulting from higher domestic sales (an increase of
approximately $1.0 million versus fiscal year 1993) and (ii)
increases in selling, general and administrative expenses resulting
from the acquisitions made in fiscal year 1993 (an increase of
approximately $9.0 million versus fiscal year 1993).
Net Earnings
Net earnings were $6.3 million or $.58 per share versus $1.6 million or
$.16 per share for fiscal year 1993. The results for fiscal year 1993,
however, include a one-time benefit of $3.5 million ($2.7 million after
tax) from a settlement of a contract dispute with the Company's former
exclusive distributor for Western Europe.
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
---------------------
For the Year Ended December 26, 1993
------------------------------------
Overview
Fiscal year 1993 was characterized by a difficult transition from
distribution to direct sales and introduction of new products with
attendant start-up problems and expenses. Net revenues increased $20.9
million over fiscal year 1992. These revenues, however, generated only
approximately $5.1 million of incremental gross profit. Factors adversely
affecting gross margin were (i) increased manufacturing costs attributable
to a European factory acquired in 1993 (and since closed) as part of
Western European distribution operations,(ii) start-up manufacturing and
installation inefficiencies related to the introduction of certain new
high unit volume products and (iii) reduced unit sales in Western Europe
(and consequently lower fixed cost absorption) attributable to the
reorganization from distribution through independent distributors to
direct sales in Western Europe. At the same time, due primarily to a
change from distribution sales and related service to Company-sponsored
direct sales and service in Western Europe, selling and related expenses
(primarily direct and indirect sales and related product installation and
service costs) increased by approximately $10.9 million over fiscal year
1992. These factors resulted in an operating loss of approximately $.6
million for the year.
Net Revenues
Net revenues increased $20.9 million (or 28.9%) over fiscal year 1992
(from $72.2 million to $93.0 million). Domestic and international net
revenues were 64.1% and 35.9%, respectively, of total net revenues,
compared to 68.7% and 31.3% for fiscal year 1992. Domestic EAS net
revenues increased $9.4 million (or 20.7%) primarily as a result of unit
volume increases across all major product lines and increases in service
revenues. Domestically, these positive effects were somewhat offset by
lower pricing from high volume national retailers. International EAS net
revenues increased $10.8 million (or 47.6%), primarily as a result of
higher unit volumes and price increases on reusable tags combined with
significantly higher prices across other major product lines attributable
to various acquisitions and start up operations made in late 1992 and
throughout 1993 in numerous countries where the Company previously sold
through distributors.
Cost of Revenues
Cost of revenues increased $15.8 million (or 40.8%) over fiscal year 1992
(from $38.7 million to $54.4 million). As a percentage of net revenues,
cost of revenues increased 4.9% (from 53.6% to 58.5%) over fiscal year
1992 thereby reducing gross margin from 46.4% in fiscal year 1992 to 41.5%
in fiscal year 1993. This decrease in gross margin was primarily due to
the factors set forth in the first paragraph of this section.
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
---------------------
For the Year Ended December 26, 1993 (continued)
-----------------------------------------------
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $10.9 million (or
38.4%) over fiscal year 1992 (from $28.3 million to $39.2 million) and by
2.9% as a percentage of revenues (from 39.3% to 42.2%). The higher
expenses are primarily due to (i) increases in variable selling and
marketing expenses resulting from higher domestic sales and (ii) sales,
marketing and customer service costs borne by the Company which had been
previously incurred by independent distributors.
Net Earnings
Net earnings were $1.6 million or $.16 per share versus net earnings of
$4.4 million or $.45 per share for fiscal year 1992. Included in the
fiscal year 1993 results is a one-time benefit of $3.5 million ($2.7
million after tax) from a settlement of a contract dispute with the
Company's former exclusive distributor for Western Europe.
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 Company believes that cash provided from operating activities and
funding available under its current credit agreements, together with the
net proceeds from the sale of the shares of Common Stock (discussed
below), will be adequate for its working capital and capital expenditure
requirements. Cash provided (used) by operating activities for fiscal
years 1992, 1993 and 1994, was $1.5 million, $(6.3) million and $(7.6)
million, respectively. In fiscal years 1993 and 1994, cash used by
operating activities was negatively impacted by increases in accounts
receivable and inventories relating to significant sales increases in
those years and increases in rental equipment as a result of allowing
retailers to either test equipment before finalizing a purchase decision
or to lease the equipment under operating leases for a period which
usually ranges from three to five years.
The allowance for doubtful accounts showed a significant reduction between
fiscal years 1993 and 1994 (from $2.2 million to $1.6 million) as a final
determination was made as to the collectability of certain trade
receivables which were acquired as part of the Company's acquisition of
ID Systems in July of 1993. At the time of acquisition, the Company set
up an appropriate allowance totaling $1.6 million in order to reflect the
reduced value of this portfolio.
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
During fiscal year 1994 the Company completed a private placement debt
funding of $12 million. A significant portion of the proceeds were used
to repay existing debt under the Company's long-term revolving credit
facility. The remaining proceeds were used for general corporate purposes.
At December 31, 1994, the Company had no availability remaining under its
revolving credit facility with two banks. Subsequent to year end the
Company completed a private placement debt funding of $15 million. In
addition, the Company entered into a new $25 million revolving credit
agreement with a group of banks to replace the existing $15 million in
revolving credit indebtedness outstanding at year end. Of the $25 million
available under the revolving credit agreement, at February 28, 1995 there
was approximately $20 million outstanding at an interest rate of 7.63%,
and $5 million available for future borrowings. A significant portion of
the private placement funding proceeds, approximately $13 million, was
used for the acquisition of Alarmex and the repayment of existing debt
held by Alarmex at the time of acquisition. The balance of the private
placement funding of approximately $2 million was used for general
corporate purposes. Management continues to seek additional funding in
order to support continuing worldwide growth. In this regard the Company
has filed a Form S-3 registration statement under the Securities Act of
1933. This filing relates to an offering by the Company of 3,000,000
shares (not including 450,000 shares subject to the underwriters' over-
allotment option) of the Company's common stock. The Company expects to
complete this offering during the first half of 1995. The net proceeds to
be received by the Company from this offering are expected to approximate
$64 million. The proceeds of the offering which are discussed more fully
in the Company's Form S-3 registration statement are expected to used for
general corporate purposes including (i) funding strategic acquisitions or
start-up opportunities ($24 million), (ii) repaying certain indebtedness
under the Company's revolving credit line ($20 million) and (iii) funding
the Company's leasing programs ($20 million).
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
------------------------------------------
The Company's capital expenditures were $6.1 million in fiscal year 1992,
$4.6 million in fiscal year 1993 and $4.5 million in fiscal year 1994. The
Company expects that for the next several years similar levels of
investments in property, plant and equipment will be made. These capital
expenditures will generally be used for expanding, improving and
maintaining plant efficiency at the Company's various production
facilities located in the Caribbean. As part of its continuing strategy,
the Company is exploring strategic acquisitions in the following areas:
international direct distribution, a second source of manufacturing
capacity and product line diversification within the Company's core
businesses. In order to consummate a particular acquisition, the Company
may require additional debt or equity financing.
The Company has never paid a cash dividend and has no plans to do so in
the foreseeable future. Certain covenants in the Company's debt
instruments limit the amounts available for dividends.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Accountants......................................34
Consolidated Balance Sheets as of December 25, 1994 and
December 26, 1993...................................................35
Consolidated Earnings Statements for each of the years
in the three-year period ended December 25, 1994....................36
Consolidated Statements of Shareholders' Equity for each of the
years in the three-year period ended December 25, 1994..............36
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 25, 1994....................37
Notes to Consolidated Financial Statements...........................38-53
Financial Schedule
Schedule II - Valuation and Qualifying Accounts...................57
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Checkpoint Systems, Inc.
We have audited the consolidated financial statements and financial
statement schedule of Checkpoint Systems, Inc. and subsidiaries listed in
item 14(a)of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit 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 financial statements referred to above, present
fairly, in all material respects, the consolidated financial position of
Checkpoint Systems, Inc. and subsidiaries as of December 25, 1994 and
December 26, 1993, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December
25, 1994 in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information
required to be included therein.
As discussed in Note 1 to the Financial Statements, in 1993, the Company
changed its method of accounting for income taxes.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 15, 1995,
except as to Note 17 for
which the date is March 3, 1995
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
December 25, December 26,
1994 1993
------------ -----------
ASSETS (Thousands)
CURRENT ASSETS
Cash $ 944 $ -
Accounts receivable, net of allowances
of $1,570,000 and $2,237,000 33,290 24,239
Inventories 29,486 25,450
Other current assets 4,385 5,213
Deferred income taxes 1,117 -
------- -------
Total current assets 69,222 54,902
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation and amortization 36,799 30,862
EXCESS OF PURCHASE PRICE OVER FAIR VALUE
OF NET ASSETS ACQUIRED 10,120 8,919
INTANGIBLES 5,826 5,098
DEFERRED TAXES, net of valuation allowance - 479
OTHER ASSETS 5,958 4,739
------- -------
TOTAL ASSETS $127,925 $104,999
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $10,064 $ 9,716
Accrued compensation and related taxes 2,635 1,907
Income taxes 2,223 792
Unearned revenues 3,357 2,645
Other current liabilities 4,810 7,761
Short-term borrowings and current portion
of long-term debt 6,706 4,097
------- -------
Total current liabilities 29,795 26,918
LONG-TERM DEBT, LESS CURRENT MATURITIES 35,556 24,302
DEFERRED INCOME TAXES 1,271 -
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
11,278,511 and 10,979,198 1,128 1,097
Additional capital 21,592 18,346
Retained earnings 46,789 40,506
Common stock in treasury, at cost,
799,000 shares (5,664) (5,664)
Foreign currency adjustments (2,542) (506)
------- -------
TOTAL SHAREHOLDERS' EQUITY 61,303 53,779
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $127,925 $104,999
======= =======
See accompanying notes to consolidated financial statements.
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED EARNINGS STATEMENTS
1994 1993 1992
------- ------- -------
(Thousands, except per share data)
Net Revenues $128,331 $93,034 $72,166
Cost of Revenues 66,360 54,421 38,650
------- ------- -------
Gross Profit 61,971 38,613 33,516
Selling, General and Administrative
Expenses 50,243 39,238 28,342
------- ------- -------
Operating Income (loss) 11,728 (625) 5,174
Contract Settlement Income - 3,500 -
Interest Income 529 476 140
Interest Expense 3,118 953 423
Foreign Exchange Loss 762 327 -
------- ------- -------
Earnings Before Income Taxes 8,377 2,071 4,891
Income Taxes 2,094 456 463
------- ------- -------
Net Earnings $ 6,283 $ 1,615 $ 4,428
======= ======= =======
Net Earnings Per Share $ .58 $ .16 $ .45
======= ======= =======
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Foreign
Common Additional Retained Treasury Currency
Stock Capital Earnings Stock Adjust. Total
------- ------- ------- ------- ------- ------
(Thousands)
Balance,
December 29, 1991 1,026 12,262 34,463 (5,664) - 42,087
Net Earnings 4,428 4,428
Exercise of Stock
Options 54 4,492 4,546
------- ------- ------- ------- ------- -------
Balance,
December 27, 1992 1,080 16,754 38,891 (5,664) - 51,061
Net Earnings 1,615 1,615
Exercise of Stock
Options 17 1,592 1,609
Foreign Currency
Adjustments (506) (506)
------- ------- ------- ------- ------- -------
Balance,
December 26, 1993 1,097 18,346 40,506 (5,664) (506) 53,779
Net Earnings 6,283 6,283
Exercise of Stock
Options 31 3,246 3,277
Foreign Currency
Adjustments (2,036) (2,036)
------- ------- ------- ------- ------- -------
Balance,
December 25, 1994 $ 1,128 $21,592 $46,789 $(5,664) $(2,542) $61,303
======= ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements.
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
1994 1993 1992
(Thousands)
Cash inflow (outflow) from operating
activities:
Net earnings 6,283 $ 1,615 $ 4,428
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Net book value of rented equipment
sold 1,652 1,268 452
Long-term customer contracts (919) 421 (1,111)
Depreciation and amortization 8,023 6,476 3,993
Deferred Taxes 633 (479) -
Provision for losses on accounts
receivable 1,221 520 88
(Increase) decrease in current assets:
Accounts receivable (11,289) (2,716) (1,445)
Inventories (13,095) (10,792) (7,169)
Other current assets 828 (2,024) (833)
Increase (decrease) in current
liabilities:
Accounts payable (669) 2,062 1,284
Accrued compensation and related
taxes 728 (269) 727
Income taxes 1,431 (385) 819
Unearned revenues 712 (7) 220
Other current liabilities (3,151) (2,007) 79
------- ------- -------
Net cash provided (used) by
operating activities (7,612) (6,317) 1,532
Cash inflow (outflow) from investing ------- ------- -------
activities:
Acquisition of property, plant and
equipment (4,532) (4,600) (6,143)
Proceeds of investment securities - - 825
Acquisitions, net of cash acquired (1,786) (3,184) (1,030)
Patent defense costs - (1,998) -
Other investing activities (2,266) (1,662) (1,147)
------- ------- -------
Net cash used by investing
activities (8,584) (11,444) (7,495)
Cash inflow (outflow) from financing ------- ------- -------
activities:
Proceeds from stock options 3,277 1,609 4,546
Proceeds of debt 28,306 14,774 3,830
Payment of debt (14,443) (942) (609)
------- ------- -------
Net cash provided by financing
activities 17,140 15,441 7,767
Net increase (decrease) in cash and ------- ------- -------
cash equivalents 944 (2,320) 1,804
Cash and cash equivalents:
Beginning of year - 2,320 516
------- ------- -------
End of Year $ 944 - $ 2,320
------- ------- -------
See accompanying notes to consolidated financial statements.
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Checkpoint
Systems, Inc. and its wholly-owned subsidiaries ("Company"). All material
intercompany transactions are eliminated in consolidation.
Fiscal Year
----------
The Company's fiscal year is the 52 or 53 week period ending the last
Sunday of December. References to 1994, 1993 and 1992 are for: the 52
weeks ended December 25, 1994, the 52 weeks ended December 26, 1993, and
the 52 weeks ended December 27, 1992.
Reclassifications
-----------------
Certain reclassifications have been made to the 1993 and 1992 financial
statements and related footnotes to conform to the 1994 presentation.
Revenue Recognition
-------------------
Revenue from the sale of equipment is recognized upon shipment of
equipment or the acceptance of a customer order to purchase equipment
currently rented. Equipment leased to customers under sales-type leases
is accounted for as the equivalent of a sale. The present value of such
lease revenues is recorded as net revenues, and the related cost of the
equipment is charged to cost of revenues. The deferred finance charges
applicable to these leases are recognized over the terms of the leases
using the effective interest method. Rental revenue from equipment under
operating leases is recognized over the term of the lease. Service
revenue is recognized over the contractual period or as services are
performed. Sales to third party leasing companies are recognized as the
equivalent of a sale. These sales were all made on a non-recourse basis.
Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out method)
or market. Cost includes material, labor and applicable overhead.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are carried at cost. Depreciation and
amortization generally are provided on a straight-line basis over the
estimated useful lives of the assets; for certain manufacturing equipment,
the units-of-production method is used. Maintenance, repairs and minor
renewals are expensed as incurred. Additions, improvements and major
renewals are capitalized. The cost and accumulated depreciation
applicable to assets retired are removed from the accounts and the gain or
loss on disposition is included in income.
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Excess of Purchase Price Over Fair Value of Net Assets Acquired
---------------------------------------------------------------
The excess of purchase price over the fair value of net assets acquired is
amortized on a straight-line basis over their economic useful lives which
is considered to be 20 years. Accumulated amortization approximated
$2,437,000 and $1,852,000 at December 25, 1994 and December 26, 1993,
respectively.
Research and Development Costs
------------------------------
Research and development costs are expensed as incurred, and approximated
$4,877,000, $5,392,000, and $4,498,000 in 1994, 1993 and 1992,
respectively.
Royalty Expense
---------------
Royalty expenses incurred approximated $2,227,000, $1,619,000 and
$1,279,000 in 1994, 1993, and 1992, respectively.
Per Share Data
--------------
Per share data is based on the weighted average number of common and
common equivalent shares (stock options) outstanding during the year. The
number of shares used in the per share computations were 10,806,000
(1994), 10,386,000 (1993), and 9,951,000 (1992).
Intangibles
-----------
Intangibles consist of patents, rights, customer lists and software
development costs. The costs relating to the acquisition of patents,
rights and customer lists are amortized on a straight-line basis over
their useful lives of ten years or legal life, whichever is shorter.
Accumulated amortization approximated $1,027,000 and $473,000 at December
25, 1994 and December 26, 1993, respectively.
The costs of internally developed software are expensed until the
technological feasibility of the software has been established.
Thereafter, all software development costs are capitalized and
subsequently reported at the lower of unamortized cost or net realizable
value. The costs of capitalized software are amortized over the products'
estimated useful lives or five years, whichever is shorter. During 1994
and 1993, $743,000 and $575,000 of software development costs were
capitalized. Accumulated amortization of these costs approximated
$965,000 and $444,000 at December 25, 1994 and December 26, 1993,
respectively.
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Taxes on Income
---------------
In 1993, Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes" was adopted. Under this method, deferred
tax liabilities and assets are determined based on the difference between
financial statement and tax basis of assets and liabilities using enacted
statutory tax rates in effect at the balance sheet date. The adoption of
this new standard did not have a material effect on the Company's
financial statements. For 1992, taxes on income are determined under
Accounting Principles Board Opinion 11 (APB 11) whereby the income tax
provision is calculated under the deferred method. Generally, the
deferred method recognizes income taxes on financial statement income and
the tax effect of differences with taxable income are deferred at tax
rates in effect during the period.
Accounting for Foreign Currency Translation and Transactions
------------------------------------------------------------
The Company's balance sheet accounts of foreign subsidiaries are
translated into U.S. dollars at the rate of exchange in effect at the
balance sheet dates. Revenues, costs and expenses of the Company's
foreign subsidiaries are translated into U.S. dollars at the average rate
of exchange in effect during each reporting period. The resulting
translation adjustment is recorded as a separate component of
stockholders' equity. In addition, gains or losses on long-term
intercompany transactions are excluded from the results of operations and
accumulated in the aforementioned separate component of consolidated
stockholders' equity. All other foreign transaction gains and losses are
included in the results of operations.
Aggregate foreign currency transaction losses in 1994, 1993 and 1992 were
$762,000, $327,000 and zero, respectively, and are included in "Foreign
Exchange Loss" in the Consolidated Earnings Statement.
2. INVENTORIES
Inventories consist of the following:
1994 1993
---- ----
(Thousands)
Raw materials $ 6,078 $ 8,256
Work-in-process 193 705
Finished goods 23,215 16,489
------ ------
Totals $29,486 $25,450
====== ======
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY, PLANT AND EQUIPMENT
The major classes are:
1994 1993
---- ----
(Thousands)
Land $ 892 $ 892
Building 9,751 9,733
Equipment rented to customers 10,364 3,736
Machinery and equipment 35,162 31,434
Leasehold improvements 1,129 1,949
Leased equipment under capital
leases 15 15
------- -------
$57,313 $47,759
Accumulated depreciation
and amortization (20,514) (16,897)
------- -------
$36,799 $30,862
======= =======
4. SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT
The short-term debt and current portion of long-term debt at December 25,
1994 and at December 26, 1993 consisted of the following:
December 25, 1994 December 26, 1993
----------------- ------------------
(Thousands)
Current portion of Long-term Debt $3,277 $1,733
$2 million credit line held by
Puerto Rico subsidiary with
interest at 8.5% 2,000 1,000
Line of credit held by Argentine
subsidiary with interest at 13.0% 1,429 1,215
Various loans obtained by the
Company's subsidiaries - 149
------- -------
Total short-term debt and
current portion long-term debt $ 6,706 $ 4,097
======= =======
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT
The long-term debt at December 25, 1994 and December 26, 1993 consisted of
the following:
December 25, 1994 December 26, 1993
----------------- -----------------
(Thousands)
$13 million credit line with
interest at 8.5% $12,880 $17,830
Seven year $7 million term
note with interest at 4.9% 5,250 6,300
Six year $8 million term note
with interest at 6.5% 7,059 -
Eight year $12 million private
placement note with interest
at 8.27% 12,000 -
Acquisition of rights in a point
of sale monitoring system with
interest imputed at 6% 281 542
Note payable for the purchase of
licensing agreement 300 -
Three year $1.4 million term note
held by Canadian subsidiary with
interest at 7.868% 823 1,288
Various loans obtained by the
Company's subsidiaries 240 75
------- -------
Total 38,833 26,035
Less current portion (3,277) (1,733)
------- -------
Total long-term portion $35,556 $24,302
======= =======
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has a Revolving Credit Agreement with its principal lending
bank which currently provides a line of credit of up to $13,000,000
through May 1, 1996. At December 25, 1994, borrowings at $12,880,000
under this credit agreement were outstanding with an interest rate of 8.5%.
In December 1992, the Company entered into a $7,000,000 seven year loan
agreement at a fixed rate of 4.9% with its principal lending bank. Three
equal installments of $350,000 are due during each year for a total of
$1,050,000 per year with interest due monthly. At December 25, 1994,
$5,250,000 was outstanding.
In February 1994, the Company entered into a $8,000,000 six year loan
agreement at a fixed rate of 6.5% with its principal lending bank. Three
equal installments of $470,588 are due during each year for a total of
$1,411,764 per year with interest due monthly. At December 25, 1994,
$7,058,824 was outstanding.
In March 1994, the Company entered into a $12,000,000 private placement
debt funding agreement at a fixed rate of 8.27%. Principal payments of
$4,000,000 annually are to be made starting in year 2000 with interest due
semi-annually.
The above loan agreements contain certain restrictive covenants which,
among other things, requires maintenance of specified minimum financial
ratios including debt to capitalization, interest coverage and tangible
net worth. In addition, these agreements limit the Company's ability to
pay dividends.
Long-term debt also relates to the acquisition of a licensing agreement.
Remaining payments of $100,000 under this note are due February 1995,
February 1996 and February 1997.
Long-term debt also relates to the acquisition of rights in a
point-of-sale monitoring system being marketed under the name Viewpoint.
One remaining payment of $280,500 under this note is due December 24,
1995. Interest has been imputed using a 6.5% annual rate. The amount due
on December 24, 1995 is classified as a current portion of long-term debt.
In October 1993, the Company's Canadian subsidiary entered into a three
year $1.4 million term note to finance certain sales-type leases.
Payments are due monthly with a fixed interest rate of 7.87%.
The aggregate maturities on all long-term debt are:
(Thousands)
1995 $3,277
1996 16,070
1997 2,562
1998 2,462
1999 2,462
Thereafter 12,000
-------
Total $38,833
=======
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. STOCK OPTIONS
Under a stock option plan for all employees adopted by the shareholders of
the Company in 1987 ("1987 Plan"), the Company granted either incentive
stock options ("ISOs") or non-incentive stock options to purchase up to
2,000,000 shares of Common Stock (amended in 1990 from a previous level of
1,000,000).
The Company amended, restated and renamed the 1987 plan in 1992 ("1992
Plan") allowing the Company to grant either ISOs or non-incentive stock
options to purchase up to 3,000,000 shares of Common Stock (amended in
1992 from a previous level of 2,000,000 shares). Under the 1992 Plan,
only employees are eligible to receive ISOs and both employees and non-
employee directors of the Company are eligible to receive non-incentive
stock options. Non-incentive stock options issued under the 1992 Plan
through December 25, 1994 total 817,247 shares. At December 25, 1994,
December 26, 1993 and December 27, 1992 a total of 208,500, 364,500 and
845,500 shares, respectively, were available for grant.
All ISO's under the 1992 Plan expire not more than 10 years (plus six
months in the case of non-incentive options) from the date of grant. Both
ISO's and non-incentive options require a purchase price of not less than
100% of the fair market value of the stock at the date of grant.
The 1992 Plan is administered by the Company's Compensation and Stock
Option Committee of the Board of Directors. Of the options outstanding at
December 25, 1994, options for 38,351 shares were not part of any plans
and did not qualify as ISOs. Options that were fully vested and
exercisable totaled 1,446,151 as of December 25, 1994.
The following schedule summarizes stock option activity and status:
1994 1993 1992
---- ---- ----
Outstanding at beginning of year 1,593,464 1,281,114 1,639,500
Granted 198,500 489,000 299,000
Exercised (298,313) (168,650) (548,334)
Canceled (47,500) (8,000) (109,052)
--------- --------- --------
Outstanding at end of year 1,446,151 1,593,464 1,281,114
========= ========= =========
Price range of options outstanding $4.88 to $4.88 to $4.88 to
at end of year $17.25 $16.50 $13.50
Price range of options exercised $4.88 to $4.88 to $4.88 to
during the year $16.50 $13.50 $13.50
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments in 1994, 1993 and 1992, respectively, included payments for
interest of $2,410,000, $860,000 and $423,000 and income taxes of
$375,000, $638,000 and $123,000.
Excluded from the 1994 Consolidated Statements of Cash Flows is a non-cash
activity of $200,000 relating to the purchase of a licensing agreement in
which the Company recorded the full cost of the agreement and the
associated liability. Also excluded from investing activities in the
Consolidated Statements of Cash flows are net transfers from inventory to
property, plant and equipment of $9,059,000, $3,976,000 and $1,188,000 in
1994, 1993 and 1992 respectively, relating to equipment rented to
customers.
In March 1993, the Company purchased all of the capital stock of its
Argentinean distributor for $2,103,000. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired ...................$3,690,000
Cash paid and direct costs
incurred for the capital stock.................$2,103,000
----------
Liabilities assumed..............................$1,587,000
==========
In July 1993, the Company purchased all of the capital stock of ID Systems
International B.V. and ID Systems Europe B.V. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired ...................$14,575,000
Cash paid and direct costs incurred
for the capital stock including advances ........$ 1,690,000
-----------
Liabilities assumed..............................$12,885,000
===========
8. SHAREHOLDERS' EQUITY
In December 1988, the Company's Board of Directors approved a
Shareholders' Rights Plan (the "Plan"), and declared a dividend
distribution of one common share purchase right ("Right") for each
outstanding share of the Company's Common Stock to shareholders of
record on December 29, 1988. The Rights are designed to ensure all
Company shareholders fair and equal treatment in the event of a proposed
takeover of the Company, and to guard against partial tender offers and
other abusive tactics to gain control of the Company without paying all
shareholders a fair price.
The Rights are exercisable only as a result of certain actions (defined by
the Plan) of an Acquiring Person or Adverse Person, as defined.
Initially, upon payment of the exercise price (currently $40), each Right
will be exercisable for one share of Common Stock. Upon the occurrence of
certain events as specified in the Plan, each Right will entitle its
holder (other than an Acquiring Person or an Adverse Person) to purchase a
number of the Company's or Acquiring Person's common shares having a
market value of twice the Right's exercise price. The Rights expire on
December 28, 1998. Generally, within ten days after a person becomes an
Acquiring Person or is determined to be an Adverse Person, the Company
can redeem the Rights.
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES
The Company's net earnings generated by the operations of its Puerto Rican
subsidiary are exempt from Federal income taxes under Section 936 of the
Internal Revenue Code and substantially exempt from Puerto Rican income
taxes.
In 1991, the Company was granted a new local tax exemption agreement with
a twenty year 90% local tax exemption retroactive to 1988 on both the
target and sensor manufacturing operations.
Repatriation of the Puerto Rico subsidiary's unremitted earnings could
result in the assessment of Puerto Rico "tollgate" taxes at a maximum rate
of 3.5% of the amount repatriated. During 1994 and 1993, a provision was
made for tollgate taxes and during 1992, no provision was made for
tollgate taxes. The Company has not provided for tollgate taxes on
$24,321,000 of its subsidiary's unremitted earnings since they are
expected to be reinvested indefinitely.
The domestic and foreign components of earnings before income taxes are:
1994 1993 1992
---- ---- ----
Domestic $ 6,931 $ 1,720 $ 4,891
Foreign 1,446 351 -
------- ------- -------
Total $ 8,377 $ 2,071 $ 4,891
======= ======= =======
The related provision for income taxes consist of:
1994 1993 1992
---- ---- ----
Currently Payable (Thousands)
Federal $ 914 $ 369 $ 632
State - 5 94
Puerto Rico 444 186 (263)
Foreign 103 375 -
Deferred
Federal 176 (509) -
State (33) 30 -
Puerto Rico - - -
Foreign 490 - -
------- ------- -------
Total Provision $ 2,094 $ 456 $ 463
======= ======= =======
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES (continued)
Deferred tax liabilities (assets) at December 25, 1994 and
December 26, 1993 consist of:
1994 1993
---- ----
(Thousands)
Depreciation $ 856 $ 805
Deferred maintenance 260 318
Unbilled receivable 155 138
------- --------
Gross deferred tax liabilities 1,271 1,261
------- --------
R & E credit carryforward - (982)
Inventory (332) (277)
Alternative minimum tax (513) (258)
Accounts receivable (117) (100)
Net operating loss carryforwards (4,668) (4,494)
Warranty (52) (41)
Other (103) (82)
------- --------
Gross deferred tax assets (5,785) (6,234)
------- --------
Valuation allowance 4,668 4,494
------- --------
Net deferred tax liability (asset) $ 154 $ (479)
======= ========
Included in net operating loss carryforwards of $13,874,000 is $11,794,000
that were acquired in connection with the acquisition of the ID Systems
Group. If realization of the benefit of such carryforwards occur, the
Company will apply such benefit to goodwill in connection with the
acquisition.
Of the total foreign net operating loss carryforwards available, $500,000
expire beginning January 1999 whereas the remaining portion may be carried
forward indefinitely.
The valuation allowance in 1993 totaling $4,494,000 relates to the net
operation losses acquired in connection with the ID Systems Group along
with subsequent losses. The increase of the valuation allowance by
$174,000 from 1993 to 1994, primarily relates to the incurrence of certain
state net operating losses during fiscal year 1994.
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES (continued)
A reconciliation of the statutory U.S. Federal income tax rate with the
effective income tax rate follows:
1994 1993 1992
---- ---- ----
Statutory federal income tax rate 34.0% 34.0% 34.0%
Tax exempt earnings of subsidiary in
Puerto Rico (13.3) (14.0) (23.8)
Change in tax exempt earnings of
subsidiary in Puerto Rico - - (8.5)
Research and Experimentation tax credit (0.8) (17.2) -
Foreign losses with no benefit - 8.4 -
State and local income taxes, net
of federal benefit 3.5 9.1 5.7
Other 1.6 1.7 2.1
------ ------ ------
Effective tax rate 25.0% 22.0% 9.5%
====== ====== ======
During 1992, the effective tax rate was favorably impacted by a refinement
of an estimate relating to tax exempt earnings of the Puerto Rico
subsidiary.
10. EMPLOYEE BENEFIT PLANS
Under the Company's defined contribution savings plans, eligible employees
(see below) may make basic (up to 6% of an employee's earnings) and
supplemental contributions to a trust. The Company matches 50% of
participant's basic contributions. Company contributions vest to
participants in increasing percentages over three to six years of service.
The Company's contributions under the plans approximated $628,000,
$478,000, and $323,000 in 1994, 1993 and 1992, respectively.
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. EMPLOYEE BENEFIT PLANS (continued)
Generally, any full-time, non-union employee of the Company (other than
someone holding the position of Vice President or higher) who has
completed one month of service, and any part-time non-union employee of
the Company who has completed one year of service, other than employees of
the Company's subsidiaries, may participate in the Company's United States
Savings Plan. All full-time employees of the Puerto Rico subsidiary who
have completed three months of service may participate in the Company's
Puerto Rico Savings Plan. Part-time employees are not entitled to
participate in the Company's Puerto Rico Savings Plan.
Under the Company's non-qualified Employee Stock Purchase Plan, employees,
other than employees of the Company's subsidiaries in Australia,
Argentina, Europe and Mexico may contribute up to $60 per week to a trust
for the purchase of Company Common Stock at fair market value. The
Company matches employee contributions up to a maximum of $17 per week.
The Company's contributions under this plan approximated $110,000, $94,000
and $76,000 in 1994, 1993 and 1992, respectively.
Under the Company's Profit Incentive Plan, bonuses are provided for
certain executives based on a percentage of the amount by which
consolidated net earnings exceed a specified portion of shareholders'
equity at the beginning of the year. During the last three years net
earnings did not exceed this criteria and, accordingly, no bonuses were
provided.
11. COMMITMENTS AND CONTINGENCIES
The Company leases its offices, distribution center and certain production
facilities. Rental expense for all operating leases approximated
$2,307,000, $1,424,000 and $811,000 in 1994, 1993 and 1992, respectively.
Future minimum payments for operating leases having non-cancellable terms
in excess of one year at December 25 1994 are: $1,611,000 (1995),
$1,495,000 (1996), $1,052,000 (1997), $778,000 (1998), $720,000 (1999) and
$5,440,000 thereafter.
The Company has entered into a twelve year lease agreement for a newly
constructed facility in 1994 which will be the Company's new headquarters
for administrative offices, research and development and warehouse
distribution. These lease payments have been included in the future
minimum payments for operating leases above.
The Company, in order to reduce its exposure to fluctuations in foreign
currency exchange rates, has entered into currency exchange forward
contracts. These agreements involve the exchange of various foreign
currencies for U.S. dollars at some future date. The Company makes
settlement of foreign currencies for U.S. dollars at maturity, at exchange
rates agreed to at inception of the contract. Counterparties to these
agreements are major financial institutions. As of December 25, 1994 and
December 26, 1993, the U.S. dollar equivalent of currency exchange forward
contracts outstanding approximated $8,800,000 and $2,803,000,
respectively. These agreements have various maturities through 1995.
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES (continued)
The Company is the exclusive worldwide licensee of Arthur D. Little, Inc.
("ADL") for certain patents and improvements thereon related to EAM
products and manufacturing processes. The Company pays a royalty to ADL
ranging from 2% to 5% of net revenues generated by the sale and lease of
the licensed products, with the actual amount of the royalty depending
upon revenue volume.
The Company is the worldwide licensee of certain patents and technical
knowledge related to proximity card and card reader products. It pays a
royalty equal to 2% of the net revenues from the licensed products. Such
royalties are payable through January 29, 2000, or until all of the
subject patents have been adjudicated invalid.
The Company has a worldwide license to distribute a point-of-sale front-
end monitoring system being marketed under the name Viewpoint. Marketing
of this product began during 1992. The Company pays a one time site
license fee for each site installed.
On March 10, 1993, the United States International Trade Commission
("Commission") instituted an investigation of a complaint filed by the
Company under Section 337 of the Tariff Act of 1930. The complaint, as
amended, alleged that six respondents imported, sold for importation, or
sold in the United States after importation certain anti-theft
deactivatable resonant tags and components thereof that infringed certain
U.S. Letters Patents of which the Company is exclusive licensee. The
Commission's notice of investigation named six respondents, each of whom
was alleged to have committed one or more unfair acts in the importation
or sale of components or finished tags that infringe the asserted patent
claims. Those respondents are: Actron AG; Tokai Denshi Co. Ltd.; ADT,
Limited; All Tag Security AG; Toyo Aluminum Ltd.; and Custom Security
Industries, Inc.
On March 10, 1994 the United States International Trade Commission issued
a Notice of Commission Determination Not to Review an Initial
Determination Finding No Violation of Section 337 of the Tariff Act of
1930. The Company has capitalized approximately $1.9 million in patent
defense costs, which is included in 'Intangibles' as of December 25, 1994.
The ultimate resolution is undetermined at this time due to the various
courses of action available to management. The Company has appealed this
determination to the appropriate United States Court of Appeals. Although
the Company's management ultimately expects a favorable outcome, should
resolution of this matter result in a less than successful defense of the
patents in question the deferred patent costs will be written off as a
charge to earnings at the time of such resolution.
Effective January 1, 1995, A.E. Wolf, former Chief Executive Officer, and
current Chairman of the Board of Directors entered into an agreement with
the Company to provide consulting services on an as-needed basis. As
compensation, Mr. Wolf will receive $530,014 per year for five years, of
which $255,014 will be deferred annually. In addition, the Company will
pay the sum of $125,000 in five equal installments of $25,000 each
commencing January 1, 1995 to Mr. Wolf for his agreement not to compete.
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. EXPORT SALES
The Company's export sales to foreign distributors which are principally
in Europe and Scandinavia approximated $10,430,000, $12,163,000, and
$22,732,000 in 1994, 1993, and 1992, respectively. Sales of the Company's
foreign subsidiaries in Argentina, Australia, Canada, Western Europe and
Mexico totaled $40,120,000 in 1994 and $21,200,000 in 1993. Sales to one
foreign distributor of the Company's products amounted to $2,786,000,
$5,000,000 and $13,147,000 in 1994, 1993 and 1992 respectively.
13. CONCENTRATION OF CREDIT RISK
Prior to 1993, most of the Company's export sales were to one foreign
distributor. Currently, the Company's foreign subsidiaries, along with
many foreign distributors, provide diversified international sales thus
minimizing credit risk to one or a few distributors. In addition, the
Company maintains foreign credit insurance to provide coverage for
potential foreign political or economic risks. Domestically, the
Company's sales are well diversified among numerous retailers in the
apparel, shoe, drug, mass merchandise, video, music, supermarket and home
entertainment market. The Company performs ongoing credit evaluations of
its customers' financial condition and generally requires no collateral
from its customers.
14. ACQUISITIONS
On March 3, 1993, the Company purchased all of the capital stock of its
Argentinean distributor for $2,103,000 plus a contingent amount to be
determined equal to fifty percent of the Argentinean subsidiary's annual
profits for the four year period ending on November 30, 1996. The Company
paid $564,000 pursuant to this contingent purchase price arrangement
during 1994. The total purchase price shall not exceed $5,000,000. This
acquisition was accounted for under the purchase method, and accordingly
the results of operations of this business have been included with those
of the Company since the date of acquisition. The purchase price resulted
in an excess of acquisition cost over net assets acquired of $2,926,000.
Such excess, (which will increase for any future contingent cash payments)
is being amortized over twenty years.
On March 8, 1993, the Company purchased a customers list from the
Company's former Mexican distributor for $560,000 in connection with the
Company establishing direct operations in Mexico. The cost related to
this customers list is included in "Intangibles" and is being amortized on
a straight line basis over ten years.
On July 8, 1993, the Company purchased all of the capital stock of ID
Systems International B.V. and ID Systems Europe B.V. ("The ID Systems
Group"), related Dutch companies engaged in the manufacture, distribution
and sale of security products and services. The Company advanced the ID
Systems Group $1,290,000 during the period in which the Company held an
option to purchase all the outstanding capital stock. The purchase price
of the capital stock, exclusive of such advances, was $60 plus direct
acquisition cost of approximately $400,000. This acquisition was
accounted for under the purchase method and, accordingly, the results of
operations of this business have been included with those of the Company
since the date of acquisition. The purchase price resulted in an excess
of acquisition cost over net assets acquired of approximately $5,510,000
which is being amortized over twenty years.
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. ACQUISITIONS (continued)
The Company acquired three production units in connection with the
purchase of the capital stock of the ID Systems Group. The Company shut
down all three of these facilities during 1994. Accordingly, the
estimated operating losses and shut down costs of these facilities
amounting to $3,434,000 were accrued for in the purchase price allocation.
As a part of the purchase price allocation, the values assigned to these
assets were based upon estimated residual values upon ultimate disposition
which represents a nominal amount.
The following unaudited summary of operations presents the consolidated
results of operations as if the acquisition of the ID Systems Group had
occurred at the beginning of the years presented. Other acquisitions made
during the year were not material to results of operations and thus are
not presented. The following results are not necessarily indicative of
what would have occurred had the acquisition been consummated as of that
date or of future results.
1993 1992
---- ----
(Thousands, except per share data)
Net revenues $99,426 $92,334
Earnings (loss) before
income taxes $(4,059) $(2,270)
Net earnings (loss) $(4,410) $(2,271)
Earnings (loss) per share $ (.41) $ (.23)
15. GEOGRAPHIC SEGMENTS
The following tables shows sales, operating earnings and other financial
information by geographic area for the years 1994 and 1993.
United States
and Puerto Rico Europe Other (1)
1994 --------------- ---------- ---------
---- (Thousands)
Net Revenues from Unaffiliated
Customers $88,211 $23,009 $17,111
Operating Income $ 9,930 $ 587 $ 1,211
Identifiable Assets $92,285 $18,987 $16,653
United States
and Puerto Rico Europe Other
1993 --------------- ---------- --------
---- (Thousands)
Net Revenues from Unaffiliated
Customers $71,834 $ 7,994 $13,206
Operating Income (loss) $(1,224) $ (357) $ 956
Identifiable Assets $78,982 $15,707 $10,310
(1) Other includes the Company's operations in Canada, Mexico, Argentina
and Australia.
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. SUBSEQUENT EVENTS
Legal
-----
The Company, together with two of its senior officers, are defendants in
an action entitled ADT, Inc. and Actron AG v. Checkpoint Systems, Inc. and
Albert E. Wolf and Kevin P. Dowd (D.C.N.J.#95-730) which was filed on
February 9, 1995.
In this action, Actron AG, one of the Company's principal European
competitors, alleges that the Company, in violation of certain common laws
and contractual obligations (1) unlawfully employed in Europe three former
employees of Actron who allegedly are in possession of, and have disclosed
to the Company, certain of Actron's confidential information, (2) has
attempted to employ in Europe certain other of Actron's current
employees,(3) has interfered with certain contractual relationships
between Actron, its former employees, and the supplier of Actron's
disposable EAS tags and (4) has, in allegedly engaging in the activities
complained of, committed acts of unfair competition. The Court has set a
date in early April 1995 to hear arguments on the Company's motion to
dismiss the complaint and has also set a date in mid April 1995 to hear
testimony and arguments on the parties' allegations and defendants
relating to Actron's motion to enjoin the Company from allegedly using
Actron's confidential information. Discovery by both parties has
commenced. The Company intends to defend itself vigorously. While the
outcome of litigation can never be predicted with certainty and the
lawsuit is still in its very preliminary stages, the Company does not
anticipate that its ultimate outcome will have a material effect on its
operations or financial condition.
On March 2, 1995, as a result of a private complaint filed in Switzerland
by Actron against three of its former employees who are now employees of
the Company's Swiss subsidiary, Swiss authorities questioned two of
these employees regarding alleged improper possession and/or use of
confidential information and proprietary data allegedly belonging to
Actron. In addition, Swiss authorities took possession of certain files
from the homes of the employees questioned and from the office of the
Company's Swiss subsidiary. The Company has not been advised that it is
the subject of any legal proceeding in Switzerland. The Company believes
that Actron's private complaint (and the resultant actions of the Swiss
authorities) are directly related to the Company's litigation with Actron
as described above.
Financing
---------
On January 25, 1995, the Company filed a registration statement with the
Securities and Exchange Commission seeking to register 3,450,000 shares of
its common stock (including an underwriters' overallotment option of
450,000 shares).
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
This offering is expected to become effective during the first half of
1995. The net proceeds to be received by the Company from this offering
are expected to approximate $67 million. The expected use of proceeds
which are discussed more fully in the Company's S-3 registration is for
general corporate purposes including (i) funding of strategic acquisitions
or start-up opportunities ($27 million), (ii) repaying certain
indebtedness ($20 million) and (iii) funding the Company's leasing
programs ($20 million).
17. SUBSEQUENT EVENTS (continued)
On January 26, 1995, the Company completed a $15,000,000 private placement
debt funding at a fixed rate of 9.35%. Principal payments of $5,000,000
are to be made annually on January 30 of each year starting in year 1999
with interest due semi-annually. This funding was used principally to
finance the Company's acquisition of Alarmex, Inc.
On February 15, 1995, the Company entered into a new $25 million Revolving
Credit Agreement which replaces the Company's Revolving Credit Agreements
that were in existence at year end. Proceeds of approximately $15 million
were used to pay off borrowings under two existing Revolving Credit Lines.
This new agreement expires on May 1, 1996.
Acquisition
-----------
On February 1, 1995 the Company purchased Alarmex, Inc. for approximately
$13.5 million ($10 million in cash and the balance in 200,717 shares of
Common Stock of the Company). Alarmex designs and provides CCTV, POS
monitoring, burglar and fire alarm systems and also provides related
central station monitoring services to over 9,000 retail sites in the
United States.
Item 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
PART III
The information called for by Item 10, Directors and Executive Officers of
the Registrant (except for the information regarding executive officers
called for by Item 401 of Regulation S-K which is included in Part I
hereof as Item A in accordance with General Instruction G(3)): Item 11,
Executive Compensation: Item 12, Security Ownership of Certain Beneficial
Owners and Management: Item 13, Certain Relationships and Related
Transactions, is hereby incorporated by reference to the Registrant's
definitive proxy statement for its Annual Meeting of Shareholders
presently scheduled to be held on April 27, 1995, which management expects
to file with the Securities and Exchange Commission within 90 days of the
end of the Registrant's fiscal year.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1992 Directors Bonus Award Plan
The Directors Bonus Award Plan was adopted on April 29, 1992 for the
purpose of providing additional incentive compensation to those members of
the Board of Directors of Checkpoint who are not employees of the Company.
Any Director who was not an employee of the Company was eligible to
participate in the Plan unless specifically excluded by the Board of
Directors. Awards under the Plan are granted to a Participant in the form
of Performance Units credited to the account maintained for such
Participant. The Board of Directors has the exclusive power to determine
the number of Performance Units to each participant. Awards of
Performance Units under the Plan do not entitle the recipient to any
dividend, voting, or other rights of a shareholder. Upon the earliest of
(a) two years after the date Performance Units are issued to him or her,
(b) retirement, (c) death, or (d) disability, a participant has the right
to receive payment in cash for the Performance Units credited to his
account. The amount of such payment is a function of appreciation in the
price of the common stock of Checkpoint from the date the Units were
granted until the date of the payment event.
On May 21, 1994, approximately, $684,000 was paid out to the eligible
members of the Board of Directors. No amounts remain to be paid under the
plan and no new plan was adopted in 1994.
Consulting Agreements
(i) Effective January 1, 1995, A.E. Wolf, former Chief Executive Officer,
and current Chairman of the Board of Directors entered into an
agreement with the Company to provide consulting services on an as-
needed basis. As compensation, Mr. Wolf will receive $530,014 per
year for five years, of which $255,014 will be deferred annually. In
addition, the Company will pay the sum of $125,000 in five equal
installments of $25,000 each commencing January 1, 1995 to Mr. Wolf
for his agreement not to compete.
(ii) The Company entered into a consulting agreement on November 1, 1994
with The Advisory Board, Inc., a company owned by Robert O. Aders, a
member of the Board of Directors. This agreement is for general
consulting services including assistance in the development of
various sales and marketing strategies. The agreement term is
November 1, 1994 through December 31, 1996. The agreement requires
a payment of $20,000 per quarter during the contract period.
PART IV
Item 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements PAGE
----------------------------
The following consolidated financial statements are
included in Part II, Item 8:
Report of Independent Accountants.........................34
Consolidated Balance Sheets as of December 25, 1994 and
December 26, 1993.......................................35
Consolidated Earnings Statements for each of the years
in the three-year period ended December 25, 1994........36
Consolidated Statements of Shareholders' Equity for each
of the years in the three-year period ended
December 25, 1994.......................................36
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 25, 1994........37
Notes to Consolidated Financial Statements...............38-53
(a) 2. Financial Schedule
---------------------------
The following consolidated schedule is required to be filed
by Part IV, Item, 14(a)2:
Schedule II - Valuation and Qualifying Accounts... 57
All other schedules are omitted either because they are not applicable,
not required, or because the required information is included in the
financial statements or notes thereto:
(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K
--------------------------------------------------------------------
Exhibit 3(a) Articles of Incorporation are hereby
incorporated by reference to Item 14(a), and
3(i) of the Registrant's Form 10-K, filed with
the SEC on March 14, 1991.
Exhibit 10 Material Contracts, are hereby incorporated by
reference to Items 14(a)(3)(v), (vi) and
(viii) of the Registrant's Form 10-K, filed
with the SEC on March 6, 1984; Item 14(a)(3)
(v) of the Registrant's Form 10-K, filed with
the SEC on February 13, 1985; Item 14(a)(3)
(iv) of the Registrant's Form 10-K, filed with
the SEC on March 11, 1987; Item 20(4.9) of
Registrant's Post-Effective Amendment Number 1
to Form S-8, filed with the SEC on January 20,
1988; Item 2(1) of the Registrant's Form 8-A,
filed with the SEC on December 21, 1988;
Appendix A to the Company's Definitive Proxy
Statement, filed March 23, 1992; Item 10 of
the Registrants Form 8-K, filed on August
25, 1992; and Item 10(a) of the Registrant's
Form 8-K, filed on July 12, 1993.
Exhibit 10(a) Amended and Restated Profit Incentive Plan
Exhibit 10(b) Consultant Agreement by and between the
Company and The Advisory Board, Inc
Exhibit 10(c) Consulting and Deferred Compensation
Agreement by and between the Company and
Albert E. Wolf
Exhibit 10(d) Amended and restated Loan and Agency Agreement
among First Fidelity Bank, N.A., The Banks
Party Hereto and the Company
Exhibit 10(e) Terms and Agreement by and among the Company
and Principal Mutual Life Insurance Company
Exhibit 10(f) First Amendment to Note Agreement by and
between the Company, Principal Mutual Life
Insurance Company and The Mutual Group
Insurance Company
Exhibit 11 Computation of per share data
Exhibit 21 Subsidiaries of the Registrant
Exhibit 23 Consent of Independent Accountant
Exhibit 24 Power of Attorney, contained in signature page
Exhibit 27 Financial Date Schedule
CHECKPOINT SYSTEMS, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Balance at
Beginning Costs and Deductions End of
Year Classification of Year Expenses(1) (2) Year
---- -------------- --------- --------- ---------- ---------
1994 Allowance for
doubtful accounts $ 2,237 $ 1,221 $ 1,888 $ 1,570
------- ------- ------- -------
1993 Allowance for
doubtful accounts $ 357 $ 2,166 $ 286 $ 2,237
------- ------- ------- -------
1992 Allowance for
doubtful accounts $ 510 $ 51 $ 204 $ 357
------- ------- ------- -------
(1) The addition of $2,166,000 charged to costs and expenses in 1993
includes a provision of $1,646,000 set up by companies acquired.
(2) The deduction of $1,888,000 in 1994 includes a significant portion of
uncollectable accounts associated with the 1993 acquisition of the ID
Systems Group.
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
------- -----------
EXHIBIT 10(a) Amended and Restated Profit Incentive
Plan
EXHIBIT 10(b) Consultant Agreement by and between the
Company and The Advisory Board, Inc
EXHIBIT 10(c) Consulting and Deferred Compensation
Agreement by and between the Company
and Albert E. Wolf
EXHIBIT 10(d) Amended and restated Loan and Agency Agreement
among First Fidelity Bank, N.A., the Banks
party hereto and the Company
EXHIBIT 10(e) Terms and Agreement by and among the Company
and Principal Mutual Life Insurance Company
EXHIBIT 10(f) First Amendment to Note Agreement by and
between the Company, Principal Mutual Life
Insurance Company and The Mutual Group
Insurance Company
EXHIBIT 11 Computation of Per Share Data
EXHIBIT 21 Subsidiaries
EXHIBIT 23 Consent of Independent Public Accountant
EXHIBIT 24 Power of Attorney, Contained in Signature
EXHIBIT 27 Financial Data Schedule
EXHIBIT 24
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized in
Thorofare, New Jersey, on March 7, 1995.
CHECKPOINT SYSTEMS, INC.
/s/ Kevin P. Dowd
President, Chief Executive Officer, Chief Operating Officer and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kevin P. Dowd, Steven G. Selfridge
and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution in their place and stead, in any and all
capacities, to sign any and all documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE Title DATE
/s/ Kevin P. Dowd President, Chief March 7, 1995
Executive Officer,Chief
Operating Officer , and
Director
/s/ Steven G. Selfridge Senior Vice President - March 7, 1995
Operations and Chief
Financial Officer,
and Treasurer
/s/ Mitchell T. Codkind Corporate Controller March 7, 1995
and Chief Accounting Officer
/s/ Robert O. Aders Director March 7, 1995
/s/ Roger D. Blackwell Director March 7, 1995
/s/ Richard J. Censits Director March 7, 1995
/s/ David W. Clark Director March 7, 1995
/s/ Allan S. Kalish Director March 7, 1995
/s/ Jermain B. Porter Director March 7, 1995
/s/Albert Soffa Director March 7, 1995
/s/ Albert E. Wolf Director March 7, 1995