Revised finances result in class action against Checkpoint

A class action lawsuit was filed against a merchandise availability solutions provider after the company allegedly violated federal securities laws.

The securities class action suit against Checkpoint Systems Inc. was filed in the U.S. District Court for the District of New Jersey on behalf of investors who purchased shares in the company during the class period between March 5 and Nov. 3 of 2015, according to a press release. The complaint alleges that the merchandise availability solutions firm and some of its officers breached the Securities Exchange Act of 1934. Checkpoint manufactures and sells technology-driven loss prevention, labeling and loss management solutions to the retail and apparel industries. The company’s products assist with branding, securing and tracking goods.

Tax problems take their toll
The class action filing claims that the defendants disseminated false financial information through the class period. On Nov. 3, Checkpoint stated in its Securities and Exchange Commission 8-K filing that it would revise certain financial statements for the first two quarters of 2015. The updated reports were intended to correct mistakes regarding the company’s quarterly income tax provision. When this was made public, Checkpoint’s stock fell more than 20 percent.

“On Nov. 3, Checkpoint stated it would revise certain financial statements.”

“Given the uncertainties in our business outlook we are revising our revenue and EBITDA [earnings before interest, taxes, depreciation and amortization] guidance ranges and we are withdrawing our non-GAAP [generally accepted accounting principles] diluted net earnings per share guidance,” James Lucania, acting chief financial officer and treasurer, said in a Nov. 3 press release. “With the relatively low base of pre-tax income and the significant volatility of our effective tax rate depending in which country each marginal dollar of income is earned, we believe earnings per share is no longer a valuable metric with which analysts can evaluate our stock.”

Checkpoint also described cost reduction measures that it would begin taking. George Babich, the company’s president and CEO, stated that the company would implement a plan to reduce expenses by $20 million, including $15 million by the end of 2016.

Updated financial statements include growing losses per share
The following day, Checkpoint released the revised financial statements. The restated loss figures were substantially lower than what had been previously reported. Additionally, the company disclosed that its updated loss per share for the first quarter had grown to $0.06 from $0.02. The same figure for the first half of 2015 also rose, doubling to $0.28 from $0.14. The class action complaint alleges that the release of the previously undisclosed information led to significant losses.

For more information on this case or other class action litigations, please contact Adam Foulke at 203-987-4949 or info@battea.com.