Checkpoint Systems (CKP) 10-Q 2008 Q2 Quarterly report

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2008

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

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)	(IRS Employer Identification No.)
101 Wolf Drive, PO Box 188, Thorofare, New Jersey	08086
(Address of principal executive offices)	(Zip Code)

856-848-1800

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filerþ	Accelerated filero	Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso Noþ

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of August 1, 2008, there were 38,622,620 shares of the Company’s Common Stock outstanding.

CHECKPOINT SYSTEMS, INC.

FORM 10-Q

Table of Contents

	Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets		3
Consolidated Statements of Operations		4
Consolidated Statements of Stockholders’ Equity		5
Consolidated Statements of Comprehensive Income		6
Consolidated Statements of Cash Flows		7
Condensed Notes to Consolidated Financial Statements		8-18
Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations		19-30
Item 3. Quantitative and Qualitative Disclosure About Market Risk		31
Item 4. Controls and Procedures		31
PART II. OTHER INFORMATION		31
Item 1. Legal Proceedings
Item 1A. Risk Factors		32
Item 4. Submission of Matters to a Vote of Security Holders		32
Item 5. Other Information		32
Item 6. Exhibits		33
SIGNATURES		34
INDEX TO EXHIBITS		35
Rule 13a-14(a)/15d-14(a) Certification of Robert P. van der Merwe, President and Chief Executive Officer
Rule 13a-4(a)/15d-14(a) Certification of Raymond D. Andrews, Senior Vice President and Chief Financial Officer
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 936 of the Sarbanes-Oxley Act of 2002

2

CHECKPOINT SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(amounts in thousands)

	June 29,			December 30,
	2008			2007*
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	95,485		$	118,271
Marketable securities		—			29
Accounts receivable, net of allowance of $19,612 and $15,839		200,319			221,875
Inventories		127,782			109,329
Other current assets		38,654			42,914
Deferred income taxes		16,157			14,492
Total Current Assets		478,397			506,910
REVENUE EQUIPMENT ON OPERATING LEASE, net		2,888			4,500
PROPERTY, PLANT, AND EQUIPMENT, net		91,747			88,096
GOODWILL		318,526			274,601
OTHER INTANGIBLES, net		121,021			119,294
DEFERRED INCOME TAXES		43,990			28,591
OTHER ASSETS		12,134			9,052
TOTAL ASSETS	$	1,068,703		$	1,031,044
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long term debt	$	4,010		$	3,756
Accounts payable		62,266			76,404
Accrued compensation and related taxes		30,548			38,821
Other accrued expenses		44,698			43,469
Income taxes		2,653			4,827
Unearned revenues		29,891			28,576
Restructuring reserve		4,658			4,224
Accrued pensions — current		4,652			4,337
Other current liabilities		19,145			20,401
Total Current Liabilities		202,521			224,815
LONG-TERM DEBT, LESS CURRENT MATURITIES		139,892			91,756
ACCRUED PENSIONS		86,834			80,549
OTHER LONG-TERM LIABILITIES		28,844			31,419
DEFERRED INCOME TAXES		13,424			13,200
MINORITY INTEREST		902			977
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock, no par value, 500,000 shares authorized, none issued		—			—
Common stock, par value $.10 per share, 100,000,000 shares authorized, issued 42,399,929 and 41,837,525		4,239			4,183
Additional capital		374,517			360,684
Retained earnings		222,871			203,717
Common stock in treasury, at cost, 4,035,912 and 2,035,912 shares		(71,520	)		(20,621	)
Accumulated other comprehensive income, net of tax		66,179			40,365
TOTAL STOCKHOLDERS’ EQUITY		596,286			588,328
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,068,703		$	1,031,044

* Derived from the Company’s audited consolidated financial statements at December 30, 2007.

See accompanying notes to the condensed consolidated financial statements.

3

CHECKPOINT SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(amounts in thousands, except per share data)

	Quarter						Six Months
	(13 weeks) Ended						(26 weeks) Ended
	June 29,			July 1,			June 29,			July 1,
	2008			2007			2008			2007
Net revenues	$	236,200		$	195,702		$	445,820		$	366,904
Cost of revenues		138,259			112,707			261,400			213,630
Gross profit		97,941			82,995			184,420			153,274
Selling, general, and administrative expenses		75,943			59,947			149,830			119,748
Research and development		5,739			4,060			10,970			8,048
Restructuring expense		3,021			329			4,000			654
Operating income		13,238			18,659			19,620			24,824
Interest income		657			1,210			1,298			2,392
Interest expense		1,192			270			2,486			601
Other gain (loss), net		558			131			(606	)		(393	)
Earnings before income taxes and minority interest		13,261			19,730			17,826			26,222
Income taxes		(1,112	)		5,158			(1,221	)		6,745
Minority interest, net of tax		17			(2	)		(107	)		(63	)
Earnings from continuing operations		14,356			14,574			19,154			19,540
Earnings from discontinued operations, net of tax		—			523			—			523
Net earnings	$	14,356		$	15,097		$	19,154		$	20,063
Basic earnings per share:
Earnings from continuing operations	$	.36		$	.37		$	.48		$	.49
Earnings from discontinued operations, net of tax		—			.01			—			.02
Basic earnings per share	$	.36		$	.38		$	.48		$	.51
Diluted earnings per share:
Earnings from continuing operations	$	.36		$	.36		$	.47		$	.48
Earnings from discontinued operations, net of tax		—			.01			—			.02
Diluted earnings per share	$	.36		$	.37		$	.47		$	.50

See accompanying notes to the condensed consolidated financial statements.

4

CHECKPOINT SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(amounts in thousands)

														Accumulated
														Other			Total
	Common Stock				Additional		Retained		Treasury Stock					Comprehensive			Stockholders’
	Shares		Amount		Capital		Earnings		Shares		Amount			Income (Loss)			Equity
Balance, December 30, 2007		41,837	$	4,183	$	360,684	$	203,717		2,036	$	(20,621	)	$	40,365		$	588,328
Net earnings								19,154										19,154
Exercise of stock-based compensation		562		56		6,294												6,350
Tax benefit of stock-based compensation						1,726												1,726
Stock-based compensation expense						3,900												3,900
Deferred compensation plan						1,913												1,913
Repurchase of common stock										2,000		(50,899	)					(50,899	)
Amortization of pension plan actuarial losses, net of tax															49			49
Change in fair value of derivative hedge															183			183
Unrealized gain adjustment on marketable securities, net of tax															(16	)		(16	)
Foreign currency translation adjustment															25,598			25,598
Balance, June 29, 2008		42,399	$	4,239	$	374,517	$	222,871		4,036	$	(71,520	)	$	66,179		$	596,286

See accompanying notes to the condensed consolidated financial statements.

5

CHECKPOINT SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(amounts in thousands)

	Quarter					Six Months
	(13 weeks) Ended					(26 weeks) Ended
	June 29,			July 1,		June 29,			July 1,
	2008			2007		2008			2007
Net earnings	$	14,356		$	15,097	$	19,154		$	20,063
Amortization of pension plan actuarial losses, net of tax		25			49		49			194
Change in fair value of derivative hedge		480			—		183			—
Unrealized gain adjustment on marketable securities, net of tax		(3	)		—		(16	)		—
Foreign currency translation adjustment		(242	)		5,018		25,598			8,989
Comprehensive income	$	14,616		$	20,164	$	44,968		$	29,246

See accompanying notes to the condensed consolidated financial statements.

6

CHECKPOINT SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(amounts in thousands)

	June 29,			July 1,
Six Months Ended (26 Weeks)	2008			2007
Cash flows from operating activities:
Net earnings	$	19,154		$	20,063
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
Depreciation and amortization		15,194			8,851
Deferred taxes		(6,006	)		(811	)
Stock-based compensation		3,900			3,182
Provision for losses on accounts receivable		2,998			1,094
Excess tax benefit on stock compensation		(1,696	)		(292	)
Gain on sale of discontinued operations		—			(523	)
Gain on disposal of fixed assets		(16	)		(538	)
Asset impairment		401			—
(Increase) decrease in current assets, net of the effects of acquired companies:
Accounts receivable		25,485			3,304
Inventories		(11,538	)		(356	)
Other current assets		7,490			(5,450	)
Increase (decrease) in current liabilities, net of the effects of acquired companies:
Accounts payable		(17,057	)		(857	)
Income taxes		(1,186	)		(458	)
Unearned revenues		(2,275	)		(26	)
Restructuring reserve		180			(2,302	)
Other current and accrued liabilities		(15,868	)		(745	)
Net cash provided by operating activities		19,160			24,136
Cash flows from investing activities:
Acquisition of property, plant, and equipment		(9,018	)		(5,461	)
Acquisitions of businesses, net of cash acquired		(39,248	)		(6,677	)
Cash outflows from the sale of discontinued operations		—			(1,313	)
Other investing activities		147			1,106
Net cash used in investing activities		(48,119	)		(12,345	)
Cash flows from financing activities:
Proceeds from stock issuances		6,350			3,328
Excess tax benefit on stock compensation		1,696			292
Proceeds from short-term debt		3,582			2,899
Payment of short-term debt		(3,585	)		(8,808	)
Increase in overdraft borrowings		—			591
Proceeds from long-term debt		99,491			5,967
Payment of long-term debt		(56,738	)		(386	)
Purchase of treasury stock		(50,899	)		—
Net cash (used in) provided by financing activities		(103	)		3,883
Effect of foreign currency rate fluctuations on cash and cash equivalents		6,276			2,274
Net (decrease) increase in cash and cash equivalents		(22,786	)		17,948
Cash and cash equivalents:
Beginning of period		118,271			143,394
End of period	$	95,485		$	161,342

See accompanying notes to condensed consolidated financial statements.

7

CHECKPOINT SYSTEMS, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. BASIS OF ACCOUNTING

The consolidated financial statements include the accounts of Checkpoint Systems, Inc. and its majority-owned subsidiaries (Company). All inter-company transactions are eliminated in consolidation. The consolidated financial statements and related notes are unaudited and do not contain all disclosures required by generally accepted accounting principles in annual financial statements. Refer to our Annual Report on Form 10-K for the fiscal year ended December 30, 2007 for the most recent disclosure of the Company’s accounting policies.

The consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to state fairly our financial position at June 29, 2008 and December 30, 2007 and our results of operations for the thirteen and twenty-six weeks ended June 29, 2008 and July 1, 2007 and cash flows for the twenty-six week periods ended June 29, 2008 and July 1, 2007. The results of operations for the interim periods should not be considered indicative of results to be expected for the full year.

Reclassifications have been made to Note 14, Business Segments, to conform the 2007 disclosures to the current year presentation. For more information on this reclassification see Note 19, Business Segments and Geographic Information, on our Annual Report on Form 10-K for the fiscal year ended December 30, 2007.

Out of Period Adjustments

During the first quarter of 2008, we identified errors in our financial statements for the fiscal years ended 1999 through fiscal year 2007. These errors primarily related to the accounting for a deferred compensation arrangement. We incorrectly accounted for a deferred payment arrangement to a former executive of the Company, these deferred payments should have been appropriately accounted for in prior periods. We corrected these errors during the first quarter of 2008, which had the effect of increasing selling, general, and administrative expenses by $1.4 million and reducing net income by $0.8 million. These prior period errors individually and in the aggregate are not material to the financial results for previously issued annual financial statements or previously issued interim financial data prior to fiscal 2008 as well as the six months ended June 29, 2008. As a result, we have not restated our previously issued annual financial statements or previously issued interim financial data.

Stock Repurchase Program

In October 2006, our Board of Directors approved a share repurchase program that allows for the purchase of up to two million shares of the Company’s common stock. During the first six months of 2008, the Company repurchased two million shares of its common stock at an average cost of $25.42, spending a total of $50.9 million. This completed the repurchase of shares under the Company’s repurchase authorization that was put in place during the fourth quarter of 2006. Common stock obtained by the Company through the repurchase program has been added to our treasury stock holdings.

8

Warranty Reserves

We provide product warranties for our various products. These warranties vary in length depending on product and geographical region. We establish our warranty reserves based on historical data of warranty transactions.

The following table sets forth the movement in the warranty reserve:

(amounts in thousands)

	June 29,
Quarter ended	2008
Balance at beginning of year	$	8,108
Accruals for warranties issued		3,586
Settlement made		(2,878	)
Foreign currency translation adjustment		413
Balance at end of period	$	9,229

New Accounting Pronouncements and Other Standards

We adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“FAS 157”) on December 31, 2007. This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, which deferred the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) until January 1, 2009. Accordingly, our adoption of this standard in 2008 was limited to financial assets and liabilities, which primarily affects the valuation of our derivative contracts. The adoption of FAS 157 did not have a material effect on our financial condition or results of operations. We are still in the process of evaluating this standard with respect to its effect on non-financial assets and liabilities and therefore have not yet determined the impact that it will have on our financial statements upon full adoption in 2009. Non-financial assets and liabilities for which we have not applied the provisions of FAS 157 include those measured at fair value in impairment testing and those initially measured at fair value in a business combination.

We adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115” (“FAS 159”) on December 31, 2007. FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with few exceptions. FAS 159 also establishes presentation and disclosure requirements to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities. The adoption of FAS 159 did not have an effect on our financial condition or results of operations as we did not elect this fair value option, nor is it expected to have a material impact on future periods as the election of this option for our financial instruments is expected to be limited.

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. For the Company, SFAS No. 141R will be effective for business combinations occurring after December 28, 2008. We are currently evaluating the potential impact of the adoption of SFAS 141R on our financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the potential impact of the adoption of SFAS 160 on our financial statements.

9

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. We will be required to provide enhanced disclosures about (a) how and why derivative instruments are used, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Certain Hedging Activities (“SFAS 133”), and its related interpretations, and (c) how derivative instruments and related hedged items affects our financial position, financial performance, and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We are currently evaluating the potential impact of the adoption of SFAS 161 on our financial statements.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“FAS 162”). This Standard identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. FAS 162 directs the hierarchy to the entity, rather than the independent auditors, as the entity is responsible for selecting accounting principles for financial statements that are presented in conformity with generally accepted accounting principles. FAS 162 is effective 60 days following SEC approval of the Public Company Accounting Oversight Board amendments to remove the hierarchy of generally accepted accounting principles from the auditing standards. We are currently evaluating the potential impact of the adoption of FAS 162 on our financial statements.

In April 2008, the FASB issued Staff Position FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). The FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. The intent of the FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under other accounting principles generally accepted in the United States of America. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. We are currently evaluating the potential impact of the adoption of FSP FAS 142-3 on our financial statements.

In June 2008, the FASB issued Staff Position FSP EITF No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1). The FSP provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Upon adoption, a company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform to the provisions in this FSP. Early application of this FSP is prohibited. The adoption of FSP No. EITF 03-6-1 is not anticipated to have a material effect on our Consolidated Financial Statements.

Note 2. STOCK-BASED COMPENSATION

Stock-based compensation cost recognized in operating results (included in selling, general and administrative expenses) under SFAS No. 123R for the three and six months ended June 29, 2008 was $1.7 million and $3.9 million ($1.2 million and $2.6 million, net of tax) or $.03 per diluted share and $.07 per diluted share. For the three and six months ended July 1, 2007, the total compensation expense was $1.8 million and $3.2 million ($1.2 million and $2.3 million, net of tax) or $.03 per diluted share and $.06 per diluted share. The associated actual tax benefit realized for the tax deduction from option exercises of share-based payment units equaled $2.2 million and $0.5 million for the six months ended June 29, 2008 and July 1, 2007, respectively.

Stock Options

Option activity under the principal option plans as of June 29, 2008 and changes during the six months ended June 29, 2008 were as follows:

						Weighted
						Average
				Weighted-		Remaining		Aggregate
				Average		Contractual		Intrinsic
				Exercise		Term		Value
	Shares			Price		(in years)		(in thousands)
Outstanding at December 30, 2007		3,405,902		$	17.45		6.21	$	28,950
Granted		275,981			23.75
Exercised		(508,504	)		12.54
Forfeited or expired		(39,362	)		24.72
Outstanding at June 29, 2008		3,134,017		$	18.71		6.87	$	11,636
Vested and expected to vest at June 29, 2008		2,729,748		$	18.05		6.49	$	11,632
Exercisable at June 29, 2008		2,094,377		$	16.33		5.65	$	11,603

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the second quarter of fiscal 2008 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 29, 2008. This amount changes based on the fair market value of the Company’s stock. Total intrinsic value of options exercised for the six months ended June 29, 2008 and July 1, 2007 was $6.6 million and $0.8 million, respectively.

As of June 29, 2008, $5.9 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2.7 years.

10

The fair value of share-based payment units was estimated using the Black-Scholes option pricing model. The table below presents the weighted average expected life in years. The expected life computation is based on historical exercise patterns and post-vesting termination behavior. Volatility is determined using changes in historical stock prices. The interest rate for periods within the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.

The following assumptions and weighted average fair values were as follows:

	June 29,			July 1,
Six months ended	2008			2007
Weighted average fair value of grants	$	8.73		$	8.90
Valuation assumptions:
Expected dividend yield		0.00	%		0.00	%
Expected volatility		38.27	%		36.56	%
Expected life (in years)		4.89			4.56
Risk-free interest rate		2.483	%		4.557	%

Restricted Stock Units

Nonvested service-based restricted stock units as of June 29, 2008 and changes during the six months ended June 29, 2008 were as follows:

				Weighted-		Weighted-
	Number of			Average Vest		Average Grant
	Shares			Date		Date Fair
	(in thousands)			(in years)		Value
Nonvested at December 30, 2007		376,386			1.48	$	32.70
Granted		129,331				$	23.76
Vested		(52,149	)			$	24.94
Forfeited		(6,192	)			$	25.65
Nonvested at June 29, 2008		447,376			1.48	$	37.64
Vested and expected to vest at June 29, 2008		228,996			1.27
Vested at June 29, 2008		61,250			—

The total fair value of restricted stock awards vested during the first six months of 2008 was $1.3 million as compared to $0.6 million in the first six months of 2007.

As of June 29, 2008, there was $3.9 million unrecognized stock-based compensation expense related to nonvested restricted stock units. That cost is expected to be recognized over a weighted-average period of 2.4 years.

Note 3. INVENTORIES

Inventories consist of the following:

(amounts in thousands)

	June 29,		December 30,
	2008		2007
Raw materials	$	17,944	$	16,352
Work-in-process		5,901		6,497
Finished goods		103,937		86,480
Total	$	127,782	$	109,329

11

Note 4. GOODWILL AND OTHER INTANGIBLE ASSETS

We had intangible assets with a net book value of $121.0 million and $119.3 million as of June 29, 2008 and December 30, 2007, respectively.

The following table reflects the components of intangible assets as of June 29, 2008 and December 30, 2007:

(amounts in thousands)

			June 29, 2008				December 30, 2007
	Amortizable		Gross				Gross
	Life		Carrying		Accumulated		Carrying		Accumulated
	(years)		Amount		Amortization		Amount		Amortization
Finite-lived intangible assets:
Customer lists		20	$	88,239	$	32,281	$	80,104	$	26,535
Trade name		30		33,695		17,077		31,662		15,695
Patents, license agreements		5 to 14		65,290		41,350		62,716		38,076
Other		3 to 6		5,937		2,062		5,890		1,322
Total amortized finite-lived intangible assets				193,161		92,770		180,372		81,628
Indefinite-lived intangible assets:
Trade name				20,630		—		20,550		—
Total identifiable intangible assets			$	213,791	$	92,770	$	200,922	$	81,628

Amortization expense for the three and six months ended June 29, 2008 was $3.1 million and $6.0 million. Amortization expense for the three and six months ended July 1, 2007 was $0.8 million and $1.7 million.

Estimated amortization expense for each of the five succeeding years is anticipated to be:

(amounts in thousands)

2008	$	12,280
2009	$	11,945
2010	$	11,115
2011	$	9,608
2012	$	9,312

The changes in the carrying amount of goodwill for the six months ended June 29, 2008, are as follows:

(amounts in thousands)

	Shrink
	Management		Intelligent		Retail
	Solutions		Labels		Merchandising		Total
Balance as of December 30, 2007	$	139,944	$	56,314	$	78,343	$	274,601
Acquired during the year		28,629		—		—		28,629
Purchase accounting adjustment		238		207		—		445
Translation adjustments		6,567		3,331		4,953		14,851
Balance as of June 29, 2008	$	175,378	$	59,852	$	83,296	$	318,526

In June 2008, the Company purchased the business of OATSystems, Inc., a privately held company, for approximately $37.2 million, net of cash acquired of $0.9 million, and including the assumption of $3.2 million of OATSystems, Inc debt. The transaction was paid in cash with $2.2 million remaining to be paid as of June 29, 2008. These amounts are anticipated to be distributed during the third quarter of 2008. Additionally, we acquired $2.2 million in liabilities.

The financial statements reflect the preliminary allocations of the OATSystems, Inc., purchase price based on estimated fair values at the date of acquisition. This allocation has resulted in acquired goodwill of $28.0 million. We are currently in the process of evaluating whether to make an Internal Revenue Code Section 338 election to treat the purchase as an asset acquisition rather than a stock purchase for tax purposes, therefore the amount of goodwill that is expected to be deductible for tax purposes has not yet been determined. If we make the Section 338 election, there could be a significant impact on deferred taxes and goodwill recorded for book purposes as a result of the acquisition. The allocation of the purchase price is expected to be completed during the year 2008. The results from the acquisition date through June 29, 2008 are included in the Shrink Management Solutions segment and were not material to the consolidated financial statements.

12

In January 2008, the Company purchased the business of Security Corporation, Inc., a privately held company that provides technology and physical security solutions to the financial services sector, for $7.5 million plus $0.8 million of liabilities acquired. The transaction was paid in cash. The financial statements reflect the preliminary allocations of the purchase price based on estimated fair values at the date of acquisition. This allocation has resulted in acquired goodwill of $0.6 million, which is deductible for tax purposes. We also acquired intangibles of $5.2 million related to customer lists with a useful life of 10 years. The results from the acquisition date through June 29, 2008 are included in the Shrink Management Solutions segment and were not material to the consolidated financial statements.

Pursuant to SFAS 142 “Goodwill and Other Intangible Assets”, we perform an assessment of goodwill by comparing each individual reporting unit’s carrying amount of net assets, including goodwill, to their fair value at least annually during the fourth quarter of each fiscal year and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Future annual assessments could result in impairment charges, which would be accounted for as an operating expense.

Note 5. LONG-TERM DEBT

Long-term debt at June 29, 2008 and December 30, 2007 consisted of the following:

(amounts in thousands)

	June 29,		December 30,
	2008		2007
Senior unsecured credit facility:
$150 million variable interest rate revolving credit facility maturing in 2010	$	139,766	$	91,496
Asialco loans maturing in 2008		—		3,418
Other capital leases with maturities through 2012		498		598
Total		140,264		95,512
Less current portion		372		3,756
Total long-term portion	$	139,892	$	91,756

The senior unsecured credit facility increased by $48.3 million since December 30, 2007. The increase in borrowings was primarily used to finance our stock repurchase program and OATSystems, Inc acquisition.

In November 2007, we acquired SIDEP and the remaining interest in Asialco from its minority shareholders. As part of the acquisition, we acquired $3.4 million (25 million RMB) of outstanding debt of Asialco. The loan was paid down in May 2008 and was renewed for a 12 month period under the original terms of the loan agreement. As of June 29, 2008, the outstanding Asialco loan balance is $3.6 million (25 million RMB) and has a weighted average interest rate of 7.47%. The loan is collateralized by land and buildings with an aggregate carrying value of $6.2 million at June 29, 2008. The loan matures through May 2009 and is included in short-term borrowings in the accompanying consolidated balance sheets.

The senior unsecured credit facility contains certain covenants that include requirements for a maximum ratio of debt to EBITDA, a maximum ratio of interest to EBITDA, and a maximum threshold for capital expenditures. As of June 29, 2008, we were in compliance with all covenants.

13

Note 6. PER SHARE DATA

The following data shows the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of dilutive potential common stock:

(amounts in thousands, except per share data)

	Quarter				Six Months
	(13 weeks) Ended				(26 weeks) Ended
	June 29,		July 1,		June 29,		July 1,
	2008		2007		2008		2007
Earnings available to common stockholders:
Basic earnings available to common stockholders	$	14,356	$	14,574	$	19,154	$	19,540
Diluted earnings available to common stockholders		14,356		14,574		19,154		19,540
Shares:
Weighted average number of common shares outstanding		39,143		39,456		39,481		39,394
Shares issuable under deferred compensation arrangements		399		308		374		298
Basic weighted average number of common shares outstanding		39,542		39,764		39,855		39,692
Common shares assumed upon exercise of stock options and awards		720		927		764		762
Shares issuable under deferred compensation arrangements		12		13		11		10
Dilutive weighted average number of common shares outstanding		40,274		40,704		40,630		40,464
Basic earnings per share:
Earnings from continuing operations	$	.36	$	.37	$	.48	$	.49
Earnings from discontinued operations, net of tax		—		.01		—		.02
Basic earnings per share	$	.36	$	.38	$	.48	$	.51
Diluted earnings per share:
Earnings from continuing operations	$	.36	$	.36	$	.47	$	.48
Earnings from discontinued operations, net of tax		—		.01		—		.02
Diluted earnings per share	$	.36	$	.37	$	.47	$	.50

The long-term incentive plan restricted stock units have been excluded due to the performance of vesting criteria not being met. Anti-dilutive common share equivalents are not included in our earnings per share calculation. The number of anti-dilutive common share equivalents were as follows:

	Quarter				Six Months
	(13 weeks) Ended				(26 weeks) Ended
	June 29,		July 1,		June 29,		July 1,
	2008		2007		2008		2007
Weighted average common share equivalents associated with anti-dilutive stock options and restricted stock units excluded from the computation of diluted EPS:		1,301		576		1,200		558

Note 7. DISCONTINUED OPERATIONS

On January 30, 2006 the Company completed the sale of its global barcode businesses included in our Labeling Services Segment, and the U.S. hand-held labeling and Turn-O-Matic® businesses included in the Retail Merchandising Segment for cash proceeds of $37 million, plus the assumption of $5 million in liabilities. The Company recorded a pre-tax gain of $2.8 million ($1.4 million, net of tax), included in discontinued operations, net of tax in the consolidated statement of operations. The post-closing adjustments have been finalized and an additional gain of $0.5 million, net of tax, was recorded in discontinued operations during the second quarter of 2007.

14

Note 8. SUPPLEMENTAL CASH FLOW INFORMATION

Cash payments for interest and income taxes for the twenty-six week periods ended June 29, 2008 and July 1, 2007 were as follows:

(amounts in thousands)

	Six Months
	(26 weeks) Ended
	June 29,		July 1,
	2008		2007
Interest	$	2,253	$	529
Income tax payments	$	6,846	$	4,238

Business Acquisitions

(amounts in thousands)

	June 29,
	2008
Fair value of tangible assets acquired, less cash acquired	$	13,603
Goodwill and identified intangible assets		34,252
Liabilities assumed		(8,607	)
Cash paid for acquisitions	$	39,248

Note 9. PROVISION FOR RESTRUCTURING

2005 Restructuring Plan

In the second quarter of 2005, we initiated actions focused on reducing our overall operating expenses. This plan included the implementation of a cost reduction plan designed to consolidate certain administrative functions in Europe and a commitment to a plan to restructure a portion of our supply chain manufacturing to lower cost areas.

A net charge of $4.0 million was recorded in the first six months of 2008 in connection with the 2005 Restructuring Plan. The charge was composed of $3.0 million of severance accruals, $0.1 million of lease termination costs, and an asset impairment of $0.4 million in our Japan manufacturing facility. All lease terminations costs were paid as of June 29, 2008. In addition, we recorded $0.5 million related to consulting in the formulation of our new restructuring plan.

The total number of employees affected by the restructuring were 829, of which 776 have been terminated. The remaining terminations are expected to be completed by the end of fiscal year 2008. The anticipated total cost is expected to approximate $28 million to $29 million, of which $28 million has been incurred and $25 million has been paid. Termination benefits are planned to be paid one month to 24 months after termination of employment.

Restructuring accrual activity was as follows:

Fiscal 2008
(amounts are in thousands)

	Accrual at				Charge
	Beginning of		Charged to		Reversed to			Cash			Exchange		Accrual at
	Year		Earnings		Earnings			Payments			Rate Changes		6/29/2008
Severance and other employee-related charges	$	3,015	$	2,987	$	(39	)	$	(2,544	)	$	174	$	3,593
Lease termination costs		—		72		—			(72	)		—		—
Acquisition restructuring costs		1,209		—		—			(226	)		82		1,065
Total	$	4,224	$	3,059	$	(39	)	$	(2,842	)	$	256	$	4,658

15

Note 10. PENSION BENEFITS

The components of net periodic benefit cost for the thirteen week and twenty-six week periods ended June 29, 2008 and July 1, 2007 were as follows:

(amounts in thousands)

	Quarter						Six Months
	(13 weeks) Ended						(26 weeks) Ended
	June 29,			July 1,			June 29,			July 1,
	2008			2007			2008			2007
Service cost	$	290		$	348		$	567		$	687
Interest cost		1,228			1,008			2,404			1,987
Expected return on plan assets		(20	)		(36	)		(38	)		(70	)
Amortization of actuarial (gain) loss		(11	)		117			(22	)		231
Amortization of transition obligation		38			32			73			62
Amortization of prior service cost		—			—			1			1
Net periodic pension cost	$	1,525		$	1,469		$	2,985		$	2,898

We expect the cash requirements for funding the pension benefits to be approximately $5.3 million during fiscal 2008, including $2.6 million which was funded during the six months ended June 29, 2008.

Note 11. FAIR VALUE MEASUREMENT

As discussed in Note 1, we adopted FAS 157 on December 31, 2007, which among other things, requires enhanced disclosures about assets and liabilities measured at fair value. Our adoption of FAS 157 was limited to financial assets and liabilities, which primarily relates to our derivative contracts.

We utilize the market approach to measure fair value for our financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

FAS 157 includes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:

Level 1	-	Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2	-	Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3	-	Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

16

The following table represents our financial assets and liabilities measured at fair value as of June 29, 2008 and the basis for that measurement:

(amounts in thousands)

			Quoted Prices
	Total Fair		in Active		Significant
	Value		Markets for		Other		Significant
	Measurement		Identical		Observable		Unobservable
	June 29,		Asset		Inputs		Inputs
	2008		(Level 1)		(Level 2)		(Level 3)
Derivative assets	$	239	$	—	$	239	$	—
Total assets	$	239	$	—	$	239	$	—
Foreign currency forward exchange contracts	$	189	$	—	$	189	$	—
Total liabilities	$	189	$	—	$	189	$	—

During the second quarter of 2008, we entered into various foreign currency contracts to reduce our exposure to forecasted 2008 Euro inter-company revenues. These contracts were designated as cash flow hedges. The foreign currency contracts mature at various dates from July 2008 to March 2009. The purpose of these cash flow hedges is to eliminate the currency risk associated with Euro denominated forecasted revenues due to changes in exchange rates. As of June 29, 2008, the fair value of these cash flow hedges were reflected as a $0.1 million asset and are included in other current assets in the accompanying consolidated balance sheets. The total notional amount of these hedges is $19.5 million (12.3 million Euros) and the unrealized gain recorded in Other Comprehensive Income was $0.1 million.

During the first quarter of 2008, we entered into an interest rate swap agreement with a notional amount of $40 million and a maturity date of February 18, 2010. The purpose of this interest rate swap agreement is to hedge potential changes to our cash flows due to the variable interest nature of our senior unsecured credit facility. This interest rate swap was designated as a cash flow hedge under SFAS No. 133. As of June 29, 2008, the fair value of the interest rate swap agreement was reflected as a $0.1 million asset and is included in other assets in the accompanying consolidated balance sheets.

We selectively purchase currency forward exchange contracts to reduce the risks of currency fluctuations on short-term inter-company receivables and payables. These contracts guarantee a predetermined exchange rate at the time the contract is purchased. This allows us to shift the effect of positive or negative currency fluctuations to a third party. As of June 29, 2008, we had currency forward exchange contracts with a notional amount totaling approximately $21.2 million. The contracts are in the various local currencies covering primarily our Western European, Canadian, Japanese and Australian operations. Historically, we have not purchased currency forward exchange contracts where it is not economically efficient, specifically for our operations in South America and Asia. As of June 29, 2008, the fair value of the forward exchange contracts was reflected as a $0.2 million liability and is included in other current liabilities in the accompanying consolidated balance sheets.

Note 12. INCOME TAXES

During the first six months of 2008, we recorded a $7.6 million benefit relating to discrete events. Included in the $7.6 million was a $4.8 million benefit relating to the release of a valuation allowance as a result of strategic decisions related to foreign operations in the second quarter of 2008 and the related impact on assumptions of future taxable income. Also included was a $1.1 million release of unrecognized tax benefits due to a favorable conclusion of an Australian tax audit and a $1.7 million tax benefit related to restructuring and deferred compensation expenses. The Australian tax audit adjustment was previously disclosed in our 2007 Form 10-K filing.

Note 13. CONTINGENT LIABILITIES AND SETTLEMENTS

We are involved in certain legal and regulatory actions, all of which have arisen in the ordinary course of business. Management believes it is remotely possible that the ultimate resolution of such matters will have a material adverse effect on our consolidated results of operations and/or financial condition.

17

Note 14. BUSINESS SEGMENTS

(amounts in thousands)

	Quarter					Six Months
	(13 weeks) Ended					(26 weeks) Ended
	June 29,			July 1,		June 29,			July 1,
	2008			2007		2008			2007
Business segment net revenue:
Shrink Management Solutions	$	136,825		$	107,787	$	263,143		$	196,435
Intelligent Labels		73,347			63,904		133,287			122,690
Retail Merchandising		26,028			24,011		49,390			47,779
Total revenues		236,200			195,702		445,820			366,904
Business segment gross profit:
Shrink Management Solutions		56,444			43,280		105,383			77,535
Intelligent Labels		29,050			28,947		54,480			53,313
Retail Merchandising		12,447			10,768		24,557			22,426
Total gross profit		97,941			82,995		184,420			153,274
Operating expenses		84,703			64,336		164,800			128,450
Interest (expense) income, net		(535	)		940		(1,188	)		1,791
Other gain (loss), net		558			131		(606	)		(393	)
Earnings before income taxes and minority interest	$	13,261		$	19,730	$	17,826		$	26,222

18

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Information Relating to Forward-Looking Statements

This report includes forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Except for historical matters, the matters discussed are forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, that reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from historical results or those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Information about potential factors that could affect our business and financial results is included in our Annual Report on
Form 10-K for the year ended December 30, 2007, and our other Securities and Exchange Commission filings.

Critical Accounting Policies and Estimates

There has been no change to our critical accounting policies and estimates, contained in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K filed for the year ended December 30, 2007.

Overview

We are a multinational manufacturer and marketer of identification, tracking, security and merchandising solutions for the retail industry. We provide technology-driven integrated supply chain solutions to brand, track, and secure goods for retailers and consumer product manufacturers worldwide. We are a leading provider of, and earn revenues primarily from the sale of, electronic article surveillance (EAS), closed-circuit television (CCTV), custom tags and labels (Check-Net^®), hand-held labeling systems (HLS), retail merchandising systems (RMS), and radio frequency identification (RFID) systems and software. Applications of these products include primarily retail security, asset and merchandise visibility, automatic identification, and pricing and promotional labels and signage. Operating directly in 31 countries, we have a global network of subsidiaries and distributors, and provide customer service and technical support around the world.

Historically, we have reported our results of operations into three segments: Security, Labeling Services, and Retail Merchandising. During the fourth quarter of 2007, resulting from previously announced changes in our management structure, we began reporting our segments into three new segments: Shrink Management Solutions, Intelligent Labels, and Retail Merchandising. The second quarter of fiscal 2007 has been conformed to reflect the segment change. The gross margins for each of the segments are set forth in Note 13 “Business Segments” to the consolidated financial statements.

Our results are heavily dependent upon sales to the retail market. Our customers are dependent upon retail sales, which are susceptible to economic cycles and seasonal fluctuations. Furthermore, as approximately two-thirds of our revenues and operations are located outside the U.S., material fluctuations in foreign currency exchange rates could have a significant impact on our results.

Our business plan is to generate sustained revenue growth through selected investments in product development and marketing. We intend to offset the cost of these investments through product cost and operating expense reductions. Revenue growth may also be generated by acquisitions that are targeted to expand our product offerings and customer base.

During early 2008, we introduced Evolve^TM, our new state-of-the-art shrink management platform. Evolve is our next-generation suite of RF and RFID enabled products that provide enhanced system performance and networking capability information in a more aesthetically pleasing format. Our business model relies upon customer commitments for our security product installations to a large number of their stores over a period of several months (large chain-wide installations). This new product will allow our existing customers to upgrade their security offerings and should result in increased installations for the future. The enhanced capabilities of the Evolve platform should also attract interest from new retail customers. As is typical with market introductions of new products in this industry, we expect the Evolve^TM roll-out to positively impact our revenues over an 18 month period starting with existing customers.

19

During June 2008, we acquired OATSystems, Inc., a leader in RFID-based application software and middleware. The addition of OATSystems, Inc. will build on our strategy of helping retailer and suppliers migrate more easily with our Evolve^TM Electronic Artricle Surveillance platform to Electronic Product Code (EPC) RFID. As our industry moves to a common EPC standard, we will now be able to offer solutions that enable retailers and their supply chains to gain deeper visibility of their assets and merchandise - further reducing shrink and increasing the bottom-line profits by enhancing on-shelf merchandise availability for consumers.

Additionally, our acquisitions of Alpha S3 and SIDEP in 2007 have expanded our product portfolio. We anticipate that these acquisitions will help us improve our product offering and, coupled with our external global distribution chain, provide a platform for continued growth. In addition to improving our offering of shrink management solutions, the Alpha acquisition adds products for use with acoustic-magnetic (AM) technology, providing the potential to expand our penetration in retail customers that are not using our RF EAS solutions.

In July 2008, we announced a manufacturing and supply chain restructuring program designed to accelerate profitable growth in Checkpoint’s CheckNet^® business and to support incremental improvements in its EAS Hardware and Labels businesses. Through this program, the Company expects to incur total after-tax restructuring charges in 2008 of approximately $5 million, or $0.12 per diluted share. Implementation of this plan is expected to be complete in 2010. The plan is expected to result in annualized cost savings of approximately $6 million while positioning the CheckNet^® service bureau business for more rapid growth. Through the first six months of 2008, the Company has incurred total charges relating to this program of $0.5 million, or $0.01 per diluted share. In addition to the restructuring expense, the implementation of this program is expected to require operating expenditures of approximately $0.04 to $0.06 per share in the second half of 2008 and includes actions to expand capacity with the objective of driving growth.

Future financial results will be dependent upon our ability to expand the functionality of our existing product lines, develop or acquire new products for sale through our global distribution channels, convert new large chain retailers to RF-EAS, and reduce the cost of our products and infrastructure to respond to competitive pricing pressures.

Our strong base of recurring revenue (revenues from the sale of consumables into the installed base of security systems and hand-held labeling tools), repeat customer business, and our borrowing capacity should provide us with adequate cash flow and liquidity to execute our business plan.

Results of Operations

(All comparisons are with the prior year period, unless otherwise stated.)

Net Revenues

Our unit volume is driven by product offerings, number of direct sales personnel, recurring sales and, to some extent, pricing. Our base of installed systems provides a source of recurring revenues from the sale of disposable tags, labels, and service revenues.

Our customers are substantially dependent on retail sales, which are seasonal, subject to significant fluctuations, and difficult to predict. Such seasonality and fluctuations impact our sales. Historically, we have experienced lower sales in the first half of each year.

20

Analysis of Statement of Operations

Thirteen Weeks Ended June 29, 2008 Compared to Thirteen Weeks Ended July 1, 2007

The following table presents for the periods indicated certain items in the consolidated statement of operations as a percentage of total revenues and the percentage change in dollar amounts of such items compared to the indicated prior period:

							Percentage
							Change
							In Dollar
	Percentage of Total Revenues						Amount
	June 29,			July 1,			Fiscal 2008
	2008			2007			vs.
Quarter ended	(Fiscal 2008)			(Fiscal 2007)			Fiscal 2007
Net revenues
Shrink Management Solutions		57.9	%		55.1	%		26.9	%
Intelligent Labels		31.1			32.6			14.8
Retail Merchandising		11.0			12.3			8.4
Net revenues		100.0			100.0			20.7
Cost of revenues		58.5			57.6			22.7
Total gross profit		41.5			42.4			18.0
Selling, general and administrative expenses		32.2			30.6			26.7
Research and development		2.4			2.1			41.4
Restructuring expense		1.3			0.2			N/A
Operating income		5.6			9.5			(29.1	)
Interest income		0.3			0.6			N/A
Interest expense		0.5			0.1			N/A
Other gain (loss), net		0.2			0.1			N/A
Earnings before income taxes and minority interest		5.6			10.1			(32.8	)
Income taxes		(0.5	)		2.7			N/A
Minority interest		—			—			N/A
Earnings from continuing operations		6.1			7.4			(1.5	)
Earnings from discontinued operations, net of tax		—			0.3			N/A
Net earnings		6.1	%		7.7	%		(4.9)	%

N/A — Comparative percentages are not meaningful.

21

Net Revenues

Revenues for the second quarter 2008 compared to the second quarter 2007 increased by $40.5 million or 20.7% from $195.7 million to $236.2 million. Foreign currency translation had a positive impact on revenues of approximately $18.7 million or 9.6% in the second quarter of 2008 as compared to the second quarter of 2007.

(amounts in millions)

					Dollar
					Amount		Percentage
					Change		Change
	June 29,		July 1,		Fiscal 2008		Fiscal 2008
	2008		2007		vs.		vs.
Quarter ended	(Fiscal 2008)		(Fiscal 2007)		Fiscal 2007		Fiscal 2007
Net revenues:
Shrink Management Solutions	$	136.8	$	107.8	$	29.0		26.9	%
Intelligent Labels		73.4		63.9		9.5		14.8
Retail Merchandising		26.0		24.0		2.0		8.4
Net revenues	$	236.2	$	195.7	$	40.5		20.7	%

Shrink Management Solutions revenues increased by $29.0 million or 26.9% in the second quarter 2008 as compared to the second quarter 2007. Foreign currency translation had a positive impact of approximately $10.1 million. The Alpha and SIDEP acquisitions increased revenues for the second quarter 2008 by $12.8 million. We anticipate Alpha revenue to continue its growth in the second half of 2008 and meet our previously disclosed annual revenue expectation of over $83 million. The remaining increase was primarily due to increases in CCTV of $4.5 million. The CCTV revenues improved due primarily to increases in the U.S. of $4.3 million. The U.S. CCTV improvements are due primarily to an increase of $3.5 million related to our banking acquisitions and $0.8 million of organic growth. The benefit of the banking acquisition should decrease as the operations become comparable in the second half of 2008. CCTV organic growth has a significant portion of its revenue growth dependent upon new store openings which could be impacted by current U.S. economic trends. EAS hardware remained flat for the second quarter 2008 compared to 2007 with increases in Asia offset by declines in our European market. The EAS hardware increase in Asia was due primarily to large chain-wide roll-outs in New Zealand and Australia of $0.9 million and $0.7 million, respectively. We anticipate the performance for these roll-outs to continue into the second half of 2008, however the 2007 comparable revenues for Australia will be more difficult due to comparable roll-outs during the second half of 2007. The EAS hardware decline in Europe was due primarily to lower revenues in Germany and France, partially offset by an increase in Spain. The EAS decline in Germany and France was due to a large roll-out in 2007 without a comparable roll-out in 2008. The EAS hardware in Germany is anticipated to improve in the second half of 2008 with new chain-wide roll-outs starting in the third quarter of 2008. The increase in Spain was due to large chain-wide roll-outs continuing into the second quarter of 2008. The revenue levels in Spain should continue into the second half of 2008, however these revenue levels will face difficult comparable revenues due to large chain-wide installations which occurred during the second half of 2007.

Intelligent Labels revenues increased by $9.5 million or 14.8% in the second quarter 2008 as compared to the second quarter 2007. The positive impact of foreign currency translation was approximately $5.2 million. Also benefiting revenue was an increase of $3.1 million and $4.1 million for our CheckNet^® business, and the acquisition of SIDEP, respectively. These increases were partially offset by declines in EAS Labels and Library of $1.3 million and $1.4 million, respectively. The increase in CheckNet^® revenues was due primarily to growth in the U.S. and Asia of $3.3 million and $1.3 million, respectively. These increases were partially offset by a decline of $1.5 million in our CheckNet^® Europe business. The increase in the U.S. and Asia CheckNet^® businesses was due primarily to an increase in new customers in those regions. The decline in CheckNet^® Europe was due primarily to pricing pressures and order delays impacting the second quarter 2008. The decrease in EAS Labels was due primarily to the U.S. business. The decrease in the U.S. was due primarily to delays in orders and increased competition. The decline in our Library business of $1.4 million was due to the transition period for our 3M distributor agreement compared to direct sales in the prior year. We expect this revenue trend to continue in the Library business for the remainder of 2008 due to this transition from direct to indirect sales.

Retail Merchandising revenues increased by $2.0 million or 8.4%. The positive impact of foreign currency translation was approximately $3.5 million. This increase was partially offset by declines in our RMS business in Europe and Asia of $0.9 million and $0.6 million, respectively. The decline in Europe was due primarily to large remodel work in 2007 without comparable business in 2008. The decline in Asia was due primarily to a large order in 2007 without comparable activities in 2008. We anticipate RMS to continue to face difficult revenue comparables for the remainder of 2008 due to the large remodel work performed in 2007.

22

Gross Profit

Gross profit for the second quarter of 2008 was $97.9 million, or 41.5% of revenues, compared to $83.0 million, or 42.4% of revenues, for the second quarter of 2007. Foreign currency translation had a positive impact on gross profit of approximately $7.5 million in the second quarter of 2008.

Shrink Management Solutions gross profit as a percentage of Shrink Management Solutions revenues increased to 41.3% in the second quarter 2008, from 40.2% in the second quarter of 2007. The increase in Shrink Management Solutions gross profit percentage was due primarily to improved margins in our EAS Hardware business and an increase in Alpha products revenues at higher margin levels, partially offset by a decrease in margins in our CCTV business due primarily to pricing pressures. We anticipate the margins in this segment to improve in the second half of 2008 due to increased projected revenues in our Alpha business representing a larger portion of this segment and continued EAS installation growth.

Intelligent Labels gross profit as a percentage of Intelligent Labels revenues decreased to 39.6% in the second quarter 2008, from 45.3% in the second quarter 2007. This decrease in Intelligent Labels gross profit percentage was due primarily to declines in EAS labels, CheckNet^® margins, and our Library business. The EAS labels margins were negatively impacted by manufacturing variances which were primarily attributable to reduced capacity utilization, production issues that resulted in increased scrap and labor inefficiencies, higher energy costs, and an increase in the raw material cost. We have upgraded certain manufacturing equipment in the second quarter and anticipate this upgrade will address the production issues impacting the second quarter margins. The increased energy costs and raw material costs could impact the future margins. The CheckNet^® margins were negatively impacted primarily by lower margins in our U.S. business and lower margin in our ADS UK. These margin declines were due primarily to operational inefficiencies and pricing pressures. We anticipate the margins will improve from the current quarter percentage for the remainder of 2008. The Library margins were negatively impacted by the 3M deal, which shifted our business model from direct sales to distributor revenues with lower margins. We anticipate the Library margins to continue at their current levels for the remainder of the year due to the transition from the direct to indirect sales model.

The Retail Merchandising gross profit as a percentage of Retail Merchandising revenues increased to 47.8% in the second quarter 2008, from 44.8% in the second quarter of 2007. This increase in Retail Merchandising gross profit percentage was primarily due to improved margins in our HLS business.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) increased $16.0 million, or 26.7%, over the second quarter of 2007. Foreign currency translation increased selling, general, and administrative expenses by approximately $5.7 million. SG&A expenses generated by the recently acquired Alpha and SIDEP operations accounted for $7.4 million of the increase over the prior year. The remaining increase was due to increased management expense and increase sales expense. The increase in management expense is due to additional costs during the transition period due to the change in executive management. The increase in sales expense corresponds to the improvement in revenues over the prior year. We anticipate selling, general and administrative expenses to continue to be impacted by our acquisitions during the remainder of 2008, including our recent acquisition of OATSystems, Inc.

Research and Development Expenses

Research and development (R&D) costs were $5.7 million, or 2.4% of revenues, in the second quarter 2008 and $4.1 million, or 2.1%, in the second quarter 2007. Foreign currency translation increased R&D costs by approximately $0.1 million. R&D expenses generated by the recently acquired Alpha and SIDEP operations were $0.8 million.

Restructuring Expenses

Restructuring expenses were $3.0 million, or 1.3% of revenues, in the second quarter 2008 and $0.3 million, or 0.2%, in the second quarter 2007.

Interest Income

Interest income for the second quarter 2008 decreased $0.6 million from the comparable quarter in 2007. The decrease in interest income was due to lower cash balances during 2008 compared to 2007.

Interest Expense

Interest expense for the second quarter of 2008 increased $0.9 million from the comparable quarter in 2007. The increase in interest expense was due to higher debt levels in 2008 compared to 2007.

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Other Gain (Loss), net

Other gain (loss), net increased by a $0.4 million gain from the comparable quarter in 2007. The increase was due primarily to a foreign exchange gain of $0.5 million in 2008 as compared to a foreign exchange gain of $0.2 million in the second quarter of 2007.

Income Taxes

Our effective tax rate for the second quarter of 2008 was negative 8.4% as compared to 26.1% for the second quarter of 2007. The second quarter effective tax rate was impacted by a $4.8 million benefit relating to the release of a valuation allowance as a result of strategic decisions related to foreign operations in the second quarter and the related impact on assumptions of future taxable income.

Net Earnings

Net earnings were $14.4 million, or $.36 per diluted share, in the second quarter of 2008 compared to $15.1 million, or $.37 per diluted share, in the second quarter of 2007. The weighted average number of shares used in the diluted earnings per share computation were 40.3 million and 40.7 million for the second quarters of 2008 and 2007, respectively.

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Twenty-six Weeks Ended June 29, 2008 Compared to Twenty-six Weeks Ended July 1, 2007

The following table presents for the periods indicated certain items in the consolidated statement of operations as a percentage of total revenues and the percentage change in dollar amounts of such items compared to the indicated prior period:

							Percentage
							Change
							In Dollar
	Percentage of Total Revenues						Amount
	June 29,			July 1,			Fiscal 2008
	2008			2007			vs.
Twenty-six weeks ended	(Fiscal 2008)			(Fiscal 2007)			Fiscal 2007
Net revenues
Shrink Management Solutions		59.0	%		53.6	%		34.0	%
Intelligent Labels		29.9			33.4			8.6
Retail Merchandising		11.1			13.0			3.4
Net revenues		100.0			100.0			21.5
Cost of revenues		58.6			58.2			22.4
Total gross profit		41.4			41.8			20.3
Selling, general and administrative expenses		33.6			32.6			25.1
Research and development		2.5			2.2			36.3
Restructuring expense		0.9			0.2			N/A
Operating income		4.4			6.8			(21.0	)
Interest income		0.3			0.7			N/A
Interest expense		0.6			0.2			N/A
Other gain (loss), net		(0.1	)		(0.1	)		N/A
Earnings before income taxes and minority interest		4.0			7.2			(32.0	)
Income taxes		(0.3	)		1.8			N/A
Minority interest		—			—			N/A
Earnings from continuing operations		4.3			5.4			(2.0	)
Earnings from discontinued operations, net of tax		—			0.1			N/A
Net earnings		4.3	%		5.5	%		(4.5)	%

N/A — Comparative percentages are not meaningful.

25

Net Revenues

Revenues for the first six months of 2008 compared to the same period in 2007 increased by $78.9 million or 21.5% from $366.9 million to $445.8 million. Foreign currency translation had a positive impact on revenues of approximately $33.6 million or 9.1% in the first six months of 2008 as compared to the first six months of 2007.

(amounts in millions)

					Dollar
					Amount		Percentage
					Change		Change
	June 29,		July 1,		Fiscal 2008		Fiscal 2008
	2008		2007		vs.		vs.
Twenty-six weeks ended	(Fiscal 2008)		(Fiscal 2007)		Fiscal 2007		Fiscal 2007
Net revenues:
Shrink Management Solutions	$	263.1	$	196.4	$	66.7		34.0	%
Intelligent Labels		133.3		122.7		10.6		8.6
Retail Merchandising		49.4		47.8		1.6		3.4
Net revenues	$	445.8	$	366.9	$	78.9		21.5	%

Shrink Management Solutions revenues increased by $66.7 million or 34.0% in the first six months of 2008 as compared to the first six months of 2007. Foreign currency translation had a positive impact of approximately $18.3 million. The Alpha and SIDEP acquisitions increased revenues for the first six months of 2008 by $26.8 million. We anticipate Alpha revenue to continue its growth in the second half of 2008 and to meet our previously disclosed annual revenue expectation of over $83 million. The remaining increase was primarily due to increases in CCTV and EAS Hardware revenues of $14.1 million and $4.7 million, respectively. The CCTV business improved due to increases in the U.S. and Japan of $12.6 million and $1.2 million, respectively. The U.S. CCTV improvements are due to a larger number of installations with existing customers in the first six months of 2008 compared to the first six months of 2007, coupled with an increase of $6.6 million from our newly acquired banking businesses. The benefit of the banking acquisitions should decrease as the operations become comparable in the second half of 2008. CCTV organic growth has a significant portion of its revenue growth dependent upon new store openings which could be impacted by current U.S. economic trends. The Japan CCTV increase is due to growth in the first quarter of 2008 in that market with comparable revenue in the second quarter compared to prior year same periods. EAS Hardware revenue increased $4.3 million in Asia Pacific. The increase in Asia Pacific was due primarily to a large chain-wide roll-out in Australia and New Zealand in first six months of 2008. We anticipate the trend to continue in this region as the roll-out will continue into the second half of 2008.

Intelligent Labels revenues increased by $10.6 million, or 8.6% in the first six months of 2008 as compared to the first six months of 2007. The positive impact of foreign currency translation was approximately $8.8 million. Also benefiting revenue were increases of $5.8 million and $4.8 million for the acquisition of SIDEP and our CheckNet^® business, respectively. These increases were partially offset by a decrease in our EAS label business and our Library business of $5.4 million and $2.8 million, respectively. The increase in our CheckNet^® revenues was due primarily to an increase in revenue in the U.S. business. The U.S. business increase was due to increased volume with existing large customers and an increase in new customer orders. The EAS Label revenue decrease was due to decreases in the U.S., Europe, and Japan of $2.5 million, $1.4 million and $0.8 million, respectively. The decrease in the U.S. was due primarily to delays in orders and increased competition. The Europe decline were primarily in Germany and the UK. The decline in Germany was due to order delays, which we anticipate will be realized in the second half of 2008. The UK decline was due to an overall business performance decline in that country. The decline in Japan is due to increased competition in this country. Library revenues declined due to the transition period for our 3M distributor agreement compared to direct sales in the prior year. We expect this revenue trend to continue in the Library business for the remainder of 2008 due to this transition from direct to indirect sales.

Retail Merchandising revenues increased by $1.6 million or 3.4%. The positive impact of foreign currency translation was approximately $6.4 million. This increase was partially offset by a decrease in our revenues from retail display systems primarily in Europe of $4.0 million and a decrease in revenues of HLS of $0.9 million. Our retail display systems decline is due to large remodel work in the first six months of 2007 without such comparable revenues in 2008. We anticipate RMS to continue to face difficult revenue comparables for the remainder of 2008 due to the large remodel work performed in 2007.

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Gross Profit

Gross profit in the first six months of 2008 was $184.4 million, or 41.4% of revenues, compared to $153.3 million, or 41.8% of revenues, in the first six months of 2007. Foreign currency translation had a positive impact of approximately $13.5 million.

Shrink Management Solutions gross profit as a percentage of Shrink Management Solutions revenues increased to 40.0% in the first six months of 2008, from 39.5% in the first six months of 2007. The increase in Shrink Management Solutions gross profit percentage was due primarily to improved margins in our EAS Hardware business and an increase in Alpha products revenues at higher margin levels, partially offset by a decrease in margins in our CCTV business. The improvement in our EAS margins is due primarily to improvements in our manufacturing process compared to the first six months of 2007. Our CCTV business decline in margin was due to inefficiencies related to volume early in 2008 and pricing pressures. We anticipate CCTV margins will maintain the second quarter levels for the remainder of the year.

Intelligent Labels gross profit as a percentage of Intelligent Labels revenues decreased to 40.9% in the first six months of 2008, from 43.5% in the first six months of 2007. This decrease was due primarily to a decrease in EAS label margins and the Library business margins. The decline in EAS label margins was due primarily to manufacturing variances, which were primarily attributable to reduced capacity utilization, production issues that resulted in increased scrap and labor inefficiencies, higher energy costs, and an increase in the raw material cost. We have upgraded certain manufacturing equipment in the second quarter and anticipate this upgrade will address the production issues impacting the second quarter margins. The increased energy costs and raw material costs could impact the future margins. The Library margins were negatively impacted by the 3M deal, which shifted our business model from direct sales to distributor revenues with lower margins.

The Retail Merchandising gross profit as a percentage of Retail Merchandising revenues increased to 49.7% in the first six months of 2008 from 46.9% in the first six months of 2007. This increase in Retail Merchandising gross profit percentage was primarily due to improved margins in our HLS business.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) increased $30.1 million, or 25.1%, over the first six months of 2007. Foreign currency translation increased selling, general, and administrative expenses by approximately $10.6 million. SG&A expenses generated by the recently acquired Alpha and SIDEP operations accounted for $12.9 million of the increase over the prior year. The remaining increase was due to $1.4 million of deferred compensation expense related to prior periods, an increase in bad debt provision incurred during the six months, increased management expense and increased costs related to the participation in trade shows during the first quarter of 2008. We anticipate selling, general and administrative expenses to continue to be impacted by our acquisitions during the remainder of 2008, including our recent acquisition of OATSystems, Inc.

Research and Development Expenses

Research and development (R&D) costs were $11.0 million, or 2.5% of revenues, in the first six months of 2008 and $8.0 million, or 2.2% of revenues, in the first six months of 2007. Foreign currency translation increased R&D costs by approximately $0.5 million. R&D expenses generated by the recently acquired Alpha and SIDEP operations were $1.5 million.

Restructuring Expenses

Restructuring expenses were $4.0 million, or 0.9% of revenues in the first six months of 2008 compared to $0.7 million or 0.2% of revenues in the first six months of 2007.

Interest Income

Interest income in the first six months of 2008s decreased $1.1 million from the comparable period in 2007. The decrease in interest income was due to lower cash balances during 2008 compared to 2007.

Interest Expense

Interest expense for the first six months of 2008 increased $1.9 million from the comparable period in 2007. The increase in interest expense was due to higher debt levels in 2008 compared to 2007.

27

Other Gain (Loss), net

Other gain (loss), net decreased by $0.2 million from the comparable six month period in 2007. The decrease was due to a foreign exchange loss of $0.8 million in 2008 as compared to a foreign exchange loss of $0.5 million in the first six months of 2007.

Income Taxes

The effective tax rate for the twenty-six weeks ended June 29, 2008 was negative 6.8%. For the twenty-six weeks ended July 1, 2007, the effective tax rate was 25.7%. During the first six months of 2008, we recorded a $7.6 million benefit relating to discrete events. Included in the $7.6 million was a $4.8 million benefit relating to the release of a valuation allowance as a result of strategic decisions related to foreign operations in the second quarter of 2008 and the related impact on assumptions of future taxable income. Also included was a $1.1 million release of unrecognized tax benefits due to the favorable conclusion of an Australian tax audit and a $1.7 million tax benefit related to restructuring and deferred compensation expenses. The Australian tax audit adjustment was previously disclosed in our 2007 Form 10-K filing.

Net Earnings

Net earnings were $19.2 million, or $0.47 per diluted share, in the first six months 2008 compared to $20.1 million, or $0.50 per diluted share, in the first six months 2007. The weighted average number of shares used in the diluted earnings per share computation were 40.6 million and 40.5 million for the first six months of 2008 and 2007, respectively.

Financial Condition

Liquidity and Capital Resources

Our liquidity needs have related to, and are expected to continue to relate to, capital investments, product development costs, potential future restructuring related to the rationalization of the business, acquisitions, and working capital requirements. We have met our liquidity needs over the last four years primarily through cash generated from operations. We believe that cash provided from operating activities and funding available under our current credit agreements should be adequate for the foreseeable future to service debt, meet our capital investment requirements and other potential restructuring requirements, and product development requirements.

As of June 29, 2008, our cash and cash equivalents were $95.5 million compared to $118.3 million as of December 30, 2007. Our operating activities during the first half of 2008 provided approximately $19.2 million compared to $24.1 million during the first half of 2007. In 2008, our cash from operating activities was impacted negatively by an increase in payments for accounts payable, payment of annual bonuses and an increase in inventory. These negative impacts were partially offset by collections of receivables.

In June 2008, the Company purchased the business of OATSystems, Inc., a privately held company, for approximately $37.2 million, net of cash acquired of $0.9 million, and including the assumption of $3.2 million of OATSystems, Inc debt. The transaction was paid in cash with $2.2 million remaining to be paid as of June 29, 2008. These amounts are anticipated to be distributed during the third quarter of 2008. Additionally, we acquired $2.2 million in liabilities.

In January 2008, the Company purchased the business of Security Corporation, Inc., a privately held company, for $7.5 million plus $0.8 million of liabilities acquired. The transaction was paid in cash.

Our capital expenditures for the first half of 2008 totaled $9.0 million, compared to $5.5 million during the first half of 2007. We anticipate our capital expenditures, used primarily to upgrade technology and improve our production capabilities, to approximate $10 million for the remainder of 2008.

The senior unsecured credit facility increased by $48.3 million since December 30, 2007. The increase in borrowings was primarily used to finance our stock repurchase program and OATSystems, Inc acquisition.

During the first quarter of 2008, we utilized our previously approved stock repurchase program in which we are authorized to purchase up to two million shares of the Company’s common stock. As of June 29, 2008, we repurchased two million shares of our common stock at an average cost of $25.42, spending a total of $50.9 million. Prior to 2008, no shares were repurchased under this plan. As of June 29, 2008, no shares remain available for purchase under the current program. Common stock obtained by the Company through the repurchase program has been added to our treasury stock holdings.

28

We continue to reinvest in the Company through spending in technology and process improvement. In the first six months of 2008, our expenditures in research and development amounted to $11.0 million. We estimate our expenditures in research and development during the remainder of 2008 will be approximately $13 to $15 million.

As of June 29, 2008, our working capital was $275.9 million compared to $282.1 million as of December 30, 2007. At the end of the second quarter 2008, our percentage of total debt to total stockholders’ equity increased to 24.1% from 16.2% as of December 30, 2007. As of June 29, 2008, we had an available line of credit totaling approximately $9.1 million.

We do not anticipate paying any cash dividends on our common stock in the near future.

Provisions for Restructuring

2005 Restructuring Plan

In the second quarter of 2005, we initiated actions focused on reducing our overall operating expenses. This plan included the implementation of a cost reduction plan designed to consolidate certain administrative functions in Europe and a commitment to a plan to restructure a portion of our supply chain manufacturing to lower cost areas.

A net charge of $4.0 million was recorded in the first six months of 2008 in connection with the 2005 Restructuring Plan. The charge was composed of $3.0 million of severance accruals, $0.1 million of lease termination costs, and an asset impairment of $0.4 million in our Japan manufacturing facility. All lease terminations costs were paid as of June 29, 2008. In addition, we recorded $0.5 million related to consulting in the formulation of our new restructuring plan.

The total number of employees affected by the restructuring were 829, of which 776 have been terminated. The remaining terminations are expected to be completed by the end of fiscal year 2008. The anticipated total cost is expected to approximate $28 million to $29 million, of which $28 million has been incurred and $25 million has been paid. Termination benefits are planned to be paid one month to 24 months after termination. Upon completion, the annual savings are anticipated to be approximately $33 million to $35 million.

Restructuring accrual activity was as follows:

Fiscal 2008
(amounts are in thousands)

	Accrual at				Charge
	Beginning of		Charged to		Reversed to			Cash			Exchange		Accrual at
	Year		Earnings		Earnings			Payments			Rate Changes		6/29/2008
Severance and other employee-related charges	$	3,015	$	2,987	$	(39	)	$	(2,544	)	$	174	$	3,593
Lease termination costs		—		72		—			(72	)		—		—
Acquisition restructuring costs		1,209		—		—			(226	)		82		1,065
Total	$	4,224	$	3,059	$	(39	)	$	(2,842	)	$	256	$	4,658

Off-Balance Sheet Arrangements and Contractual Obligations

There have been no material changes to the table presented in our Annual Report on Form 10-K for the year ended December 30, 2007. The table excludes our gross liability for uncertain tax positions, including accrued interest and penalties, which totaled $17.9 million as of June 29, 2008, and $17.6 million as of December 30, 2007, since we cannot predict with reasonable reliability the timing of cash settlements to the respective taxing authorities.

New Accounting Pronouncements and Other Standards

We adopted the provisions of SFAS No. 157, “Fair Value Measurements” (“FAS 157”) on December 31, 2007. This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, which deferred the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) until January 1, 2009. Accordingly, our adoption of this standard in 2008 was limited to financial assets and liabilities, which primarily affects the valuation of our derivative contracts. The adoption of FAS 157 did not have a material effect on our financial condition or results of operations. We are still in the process of evaluating this standard with respect to its effect on non-financial assets and liabilities and therefore have not yet determined the impact that it will have on our financial statements upon full adoption in 2009. Non-financial assets and liabilities for which we have not applied the provisions of FAS 157 include those measured at fair value in impairment testing and those initially measured at fair value in a business combination.

29

We adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115” (“FAS 159”) on December 31, 2007. FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with few exceptions. FAS 159 also establishes presentation and disclosure requirements to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities. The adoption of FAS 159 did not have an effect on our financial condition or results of operations as we did not elect this fair value option, nor is it expected to have a material impact on future periods as the election of this option for our financial instruments is expected to be limited.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. For Checkpoint, SFAS No. 141R is effective for business combinations occurring after December 28, 2008. We are currently evaluating the potential impact of the adoption of SFAS 141R on our financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the potential impact of the adoption of SFAS 160 on our financial statements.

In March 2008, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. We will be required to provide enhanced disclosures about (a) how and why derivative instruments are used, (b) how derivative instruments and related hedged items are accounted for under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Certain Hedging Activities (“SFAS 133”), and its related interpretations, and (c) how derivative instruments and related hedged items affects our financial position, financial performance, and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We are currently evaluating the potential impact of the adoption of SFAS 161 on our financial statements.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“FAS 162”). This Standard identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. FAS 162 directs the hierarchy to the entity, rather than the independent auditors, as the entity is responsible for selecting accounting principles for financial statements that are presented in conformity with generally accepted accounting principles. The Standard is effective 60 days following SEC approval of the Public Company Accounting Oversight Board amendments to remove the hierarchy of generally accepted accounting principles from the auditing standards. We are currently evaluating the potential impact of the adoption of FAS 162 on our financial statements.

In April 2008, the FASB issued Staff Position FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). The FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. The intent of the FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under other accounting principles generally accepted in the United States of America. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. We are currently evaluating the potential impact of the adoption of FSP FAS 142-3 on our financial statements.

In June 2008, the FASB issued Staff Position FSP EITF No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1). The FSP provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Upon adoption, a company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform to the provisions in this FSP. Early application of this FSP is prohibited. The adoption of FSP No. EITF 03-6-1 is not anticipated to have a material effect on our Consolidated Financial Statements.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Except as noted below, there have been no significant changes to the market risks as disclosed in Item 7A. “Quantitative And Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K filed for the year ended December 30, 2007.

Exposure to Foreign Currency

We manufacture products in the U.S., the Caribbean, Europe, and the Asia Pacific regions for both the local marketplace, and for export to our foreign subsidiaries. These subsidiaries, in turn, sell these products to customers in their respective geographic areas of operation, generally in local currencies. This method of sale and resale gives rise to the risk of gains or losses as a result of currency exchange rate fluctuations on the inter-company receivables and payables. Additionally, the sourcing of products in one currency and the sales of products in a different currency can cause gross margin fluctuations due to changes in currency exchange rates.

We have used third party borrowings in foreign currencies to hedge a portion of our net investments in and cash flows derived from our foreign subsidiaries. As we reduce our third party foreign currency borrowings, the effect of foreign currency fluctuations on our net investments in and cash flows derived from our foreign subsidiaries increases.

We selectively purchase currency forward exchange contracts to reduce the risks of currency fluctuations on short-term inter-company receivables and payables. These contracts guarantee a predetermined exchange rate at the time the contract is purchased. This allows us to shift the effect of positive or negative currency fluctuations to a third party. As of June 29, 2008, we had currency forward exchange contracts with a notional amount totaling approximately $21.2 million. The contracts are in various local currencies primarily covering our Western European, Canadian, Japanese and Australian operations. Historically, we have not purchased currency forward exchange contracts where it is not economically efficient, specifically for our operations in South America and Asia.

Hedging Activity

During the second quarter of 2008, we entered into various foreign currency contracts to reduce our exposure to forecasted 2008 Euro inter-company revenues. These contracts were designated as cash flow hedges. The foreign currency contracts mature at various dates from July 2008 to March 2009. The purpose of these cash flow hedges are to eliminate the currency risk associated with Euro denominated forecasted revenues due to changes in exchange rates. As of June 29, 2008, the fair value of these cash flow hedges were reflected as a $0.1 million asset and are included in other current assets in the accompanying consolidated balance sheets. The total notional amount of these hedges is $19.5 million (12.3 million Euros) and the unrealized gain recorded in Other Comprehensive Income was $0.1 million.

During the first quarter of 2008, we entered into an interest rate swap agreement with a notional amount of $40 million and a maturity date of February 18, 2010. The purpose of this interest rate swap agreement is to hedge potential changes to our cash flows due to the variable interest nature of our senior unsecured credit facility. This interest rate swap was designated as a cash flow hedge under SFAS No. 133. As of June 29, 2008, the fair value of the interest rate swap agreement was reflected as a $0.1 million asset and is included in other assets in the accompanying consolidated balance sheets.

Item 4. DISCLOSURE CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a — 15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Controls

There have been no changes in our internal controls over financial reporting that occurred during the Company’s second fiscal quarter of 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

We are involved in certain legal and regulatory actions, all of which have arisen in the ordinary course of business. Management believes it is remotely possible that the ultimate resolution of such matters will have a material adverse effect on our consolidated results of operations and/or financial condition.

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Item 1A. RISK FACTORS

There have been no material changes from December 30, 2007 to the significant risk factors and uncertainties known to the Company that, if they were to occur, could materially adversely affect the Company’s business, financial condition, operating results and/or cash flow. For a discussion of the Company’s risk factors, refer to Item 1A. “Risk Factors”, contained in the Company’s Annual Report on Form 10-K for the year ended December 30, 2007.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On June 5, 2008, the Company held its annual meeting of stockholders for the purpose of the election of three directors to three year terms and ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the year ending December 31, 2008.

The number of votes cast at the meeting was as follow:

			Votes
Election of Directors:	Votes For		Withheld
Harald Einsmann		31,028,241		1,751,743
Jack W. Partridge		31,882,862		897,122
Robert P. van der Merwe		31,880,161		899,823

			Votes		Votes
	Votes For		Against		Abstained
Ratification of appointment of the independent registered public accounting firm		32,757,034		9,560		13,391

Continuing as Class I directors for a term expiring in 2010 are R. Keith Elliott, William S. Antle, III and George W. Off. Continuing as Class III directors for a term expiring in 2009 are George W. Babich, Jr., Alan R. Hirsig and Sally Pearson.

Item 5. OTHER INFORMATION

Issuer Purchases of Equity Securities

The following table presents information related to the repurchases of common stock we made during the six months ended June 29, 2008.

							Maximum Number of
					Total Number of		Shares that May Yet Be
	Total Number of		Average Price		Shares Purchased		Purchased Under the
Period	Shares Purchased		Paid per Share		Under the Plan (A)		Program
December 31, 2007 — January 27, 2008		—	$	—		—		2,000,000
January 28, 2008 — February 24, 2008		—		—		—		2,000,000
February 25, 2008 — March 30, 2008		673,067		25.63		673,067		1,326,933
March 31, 2008 — April 27, 2008		—		—		—		1,326,933
April 28, 2008 — May 25, 2008		863,218		25.11		1,536,285		463,715
May 26, 2008 — June 29, 2008		463,715		25.68		2,000,000		—
Total		2,000,000	$	25.42		2,000,000		—

(A) In October 2006, our Board of Directors approved a share repurchase program that allows for the purchase of up to two million shares of the Company’s common stock. During the first six months of 2008, the Company repurchased two million shares of its common stock at an average cost of $25.42, spending a total of $50.9 million. This completed the repurchase of shares under the Company’s repurchase authorization that was put in place during the fourth quarter of 2006. Common stock obtained by the Company through the repurchase program has been added to our treasury stock holdings.

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Item 6. EXHIBITS

Exhibit 3.1	Articles of Incorporation, as amended, are hereby incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K, filed with the SEC on December 28, 2007.
Exhibit 3.2	By-Laws, as Amended and Restated, are hereby incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K, filed with the SEC on December 28, 2007.
Exhibit 31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1	Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CHECKPOINT SYSTEMS, INC.
/s/ Raymond D. Andrews	August 7, 2008
Raymond D. Andrews
Senior Vice President and Chief Financial Officer

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INDEX TO EXHIBITS

EXHIBIT	DESCRIPTION
EXHIBIT 31.1	Rule 13a-14(a)/15d-14(a) Certification of Robert P. van der Merwe, President and Chief Executive Officer
EXHIBIT 31.2	Rule 13a-4(a)/15d-14(a) Certification of Raymond D. Andrews, Senior Vice President and Chief Financial Officer
EXHIBIT 32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 936 of the Sarbanes-Oxley Act of 2002

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