Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 1 of 32 PageID: 1
Mark C. Gardy
Jennifer Sarnelli
GARDY & NOTIS, LLP
560 Sylvan Avenue, Suite 3085
Englewood Cliffs, NJ 07632
Tel: 201-567-7377
Fax: 207-567-7337
Counsel for Plaintiffs
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
STEPHEN MEIER, Individually and
On Behalf of All Others Similarly
Situated,
Plaintiff,
v.
No.
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
CHECKPOINT SYSTEMS, INC.,
GEORGE BABICH, JR., JEFFERY
O. RICHARD AND JAMES M.
LUCANIA,
Defendants.
INTRODUCTION
1.
Plaintiff, Stephen Meier, (“Plaintiff”) residing at 595 Templeton Drive
Sunnyvale CA 94087, by his undersigned attorneys, alleges as follows upon
personal knowledge as to his own acts, and upon information and belief as to all
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other matters, based on the investigation conducted by and through Plaintiff’s
counsel, which included, among other things, a review of Defendants’ public
documents, filings made with the United States Securities and Exchange
Commission (the “SEC”), announcements issued by Checkpoint Systems, Inc.
(“Checkpoint” or the “Company”), wire and press releases published by and
regarding the Company and other information readily obtainable in the public
domain.
I. NATURE OF THE ACTION
2.
This is a securities class action on behalf of all investors who
purchased or otherwise acquired Checkpoint securities between March 5, 2015,
through November 3, 2015, inclusive (the “Class Period”). This action is brought
on behalf of the Class for violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78j(b) and 78t(a), and
Rule 10b-5 promulgated thereunder by the SEC, 17 C.F.R. § 240.10b-5.
3.
Checkpoint manufactures and markets labeling systems and solutions
for a diverse customer base, providing RF source tagging, barcode labeling
systems, electronic article surveillance, handheld labeling systems, and retail
merchandising systems for applications within the automatic identification
industry. The Company employs 4,700 people worldwide. Its stock trades on the
New York Stock Exchange (“NYSE”) under the ticker ‘CKP’.
2
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4.
After the markets closed on November 3, 2015, Checkpoint filed a
Form 8-K with the SEC (“November 3 8-K”), including an Item 4.02(a), NonReliance on Previously Issued Financial Statements or a Related Audit Report or
Completed Interim Review, in which it announced that it had discovered errors
attributable to the accounting for the quarterly income tax provisions in its recently
reported financial results.
5.
Checkpoint’s common stock price plunged in reaction to this news, its
closing price falling by $1.73 per share, or 22%, between November 3, 2015 and
November 4, 2015. The single day drop represented an immediate loss of over $70
million in market capitalization.
JURISDICTION AND VENUE
6.
The claims herein arise under and pursuant to Sections 10(b) and
20(a) of the Exchange Act (15 U.S.C. § 78j(b) and 78t(a)) and Rule 10b-5
promulgated thereunder (17 C.F.R. § 240.10b-5).
7.
This Court has jurisdiction over the subject matter of this action
pursuant to § 27 of the Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331.
8.
Venue is proper in this District pursuant to § 27 of the Exchange Act,
15 U.S.C. § 78aa and 28 U.S.C. § 1391(b), as Checkpoint has its principal
executive offices located in this District and conducts substantial business therein.
3
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9.
In connection with the acts, omissions, conduct and other wrongs
alleged in this Complaint, Defendants, directly or indirectly, used the means and
instrumentalities of interstate commerce including but not limited to, the United
States mail, interstate telephone communications and the facilities of the national
securities exchange.
PARTIES
10.
Plaintiff, as set forth in the attached Certification, acquired
Checkpoint securities at artificially inflated prices during the Class Period and has
been damaged by the revelation of Checkpoint’s material misrepresentations and
material omissions.
11.
Defendant Checkpoint is incorporated under the laws of Pennsylvania
and its principle executive offices are located at 101 Wolf Drive, PO Box 188,
Thorofare, New Jersey. The Company’s common shares trade on the NYSE and,
as of October 29, 2015, Checkpoint had 41,550,175 outstanding shares of common
stock.
12.
Defendant George Babich, Jr. (“Babich”) is the Company’s President
and Chief Executive Officer (“CEO”). Babich has been President and CEO of the
Company since February 2013 and was interim President and CEO between May
2012 and February 2013.
4
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13.
Defendant James M. Lucania (“Lucania”) is the Company’s Chief
Financial Officer (“CFO”) and has been since November 10, 2015. Lucania served
as Checkpoint’s acting CFO between March 23, 2015 and November 9, 2015.
14.
Defendant Jeffrey O. Richard (“Richard”) was CFO of the Company
until March 23, 2015.
15.
The defendants referenced above in ¶¶12-14 are sometimes
collectively referred to herein as the “Individual Defendants.”
16.
The Individual Defendants, because of their positions with the
Company, possessed the power and authority to control the content and form of
Checkpoint’s annual reports, quarterly reports, press releases and presentations to
the SEC, securities analysts, money and portfolio managers and investors; i.e., the
market. The Individual Defendants were provided with copies of the SEC filings
alleged herein to be misleading prior to their issuance and had the ability and
opportunity to prevent their issuance or to cause them to be corrected. Because of
their positions with the Company and their access to material non-public
information available to them but not to the public, the Individual Defendants
knew that the adverse facts specified herein had not been disclosed to and were
being concealed from the public and that the positive representations being made
were materially false and misleading. The Individual Defendants are liable for the
false statements pleaded herein.
5
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SUBSTANTIVE ALLEGATIONS
17. The Class Period in this action begins on March 5, 2015. On that day,
Checkpoint filed with the SEC a Form 10-K providing its financial results for the
fourth quarter and year end 2014. The Company also filed with the SEC, as an
attachment to a Form 8-K, a press release accompanying the March 5 filing which
included a section entitled 2015 Outlook. The press release contained detailed
information with regards to anticipated 2015 results and tax impact, in addition to
direct quotes from Babich and Richard. It read, in relevant part, as follows:
2015 Outlook
Based on an assessment of market conditions, current customers' orders and
commitments, and assuming continuation of current foreign exchange rates,
Checkpoint is initiating guidance for 2015. This guidance does not include
the impact of acquisitions, divestitures, restructuring and one-time or
unusual charges resulting from debt refinancing, litigation fees or
settlements and gains or losses generated by non-routine operating matters
which we may record during the year.
Projected income taxes for the year can be impacted by changes in the mix
of pre-tax income and losses in the countries in which we operate. The
valuation allowance on U.S. deferred tax assets results in a GAAP tax rate
on U.S. pre-tax income or losses of essentially 0%. When the mix of income
or losses shifts from the U.S. to a country where the income tax rate is in the
normal range, our effective tax rate will increase. Additionally, we continue
to monitor our profitability in the U.S. to determine whether there is
sufficient evidence that may result in a full or partial release of the U.S.
valuation allowance. Should this occur, the 0% GAAP tax rate in the U.S.
will revert to its normal range of nearly 40%, including state income taxes.
The combination of these factors can have a significant impact on the
amount of reported income tax expense, and therefore our earnings per
share, when compared with the projections that are the basis of our outlook.
6
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Mr. Babich added, “Our business is significantly impacted by large-scale
capital projects, the timing of which can be difficult to forecast. The roll-on
and roll-off of these projects can generate large swings in revenue and
profitability. While we continue to execute a number of EAS and RFID
pilots and tests, retailers remain cautious about their in-store capital
expenditures. While it is certainly possible that some of these tests will
transition into chain-wide rollouts, our guidance assumes that none will
occur during fiscal 2015. Our guidance also assumes an incremental $7-10
million total investment in R&D and SG&A to fund our growth initiatives,
with primary benefits beginning in 2016."
Mr. Richard added, "Like many other multinational companies, we will face
tremendous currency headwinds in 2015 due to the strengthening US dollar.
Over two-thirds of our revenues are denominated in foreign currencies with
particular exposure to the Euro, the Japanese Yen, the British Pound and the
Australian Dollar. We expect fiscal 2015 total capital expenditures in the
range of $20 to $25 million. We expect our continuous working capital
improvement projects will help offset the free cash flow impact of our
increased capital spending."
Net revenues are expected to be in the range of $575 million to $625
million.
Adjusted EBITDA is expected to be in the range of $55 million to $68
million.
Non-GAAP diluted net earnings per share attributable to Checkpoint
Systems, Inc. is expected to be in the range of $0.40 to $0.50, assuming an
effective tax rate of approximately 35%.
18. In addition to the Form 10-K and the press release, the Company also
conducted a conference call with its investors on March 5, 2015, wherein it
discussed the forecast for 2015 and the Company’s anticipated tax treatment for
2015. During the call, Defendant Richard stated that:
Now on to guidance for fiscal year 2015, we expect net revenues in
the range of $575 million to $625 million. Adjusted EBITDA in the
range of $55 million to $68 million. Non-GAAP diluted net earnings
per share in the range of $0.40 to $0.50. As a reminder, our guidance
7
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assumes a continuation of the current foreign currency exchange rate
environment with over 2/3rds of our sales denominated in foreign
currency, the impact of strengthening US dollar on our net revenues
will be significant. We estimate that our 2015 revenue guidance
would have been more than $40 million higher at constant 2014
foreign exchange rates.
Our guidance also assumes that no hardware rollout are executed
during fiscal 2015 which are large enough to offset the loss of revenue
for our large projects executed during 2014, including our largest
chain-wide EAS roll out in Checkpoint's history at Family Dollar.
Our adjusted EBITDA and earnings guidance assumes $7 million to
$10 million of an incremental investments in R&D, in SG&A,
partially funded through savings delivered by our profit improvement
plans. We were also increasing our investment in capital expenditures
to drive growth and expect total CapEx to be up to $25 million for
fiscal 2015. We expect the primary benefit of these investments to
begin in 2016.
We are currently expecting a 2015 effective tax rate of approximately
35% versus approximately 30% in 2014, after giving consideration to
non-GAAP adjustments. We continue to monitor our profitability in
the US and to determine whether there is sufficient evidence that all or
a portion of the – of our US income tax valuation allowance should be
released. If this occurs, our income tax rate on US income will
increase from 0% to nearly 40%, which would significantly impact
our reported earnings per share.
Please note that all of these adjustments would have no impact on our
cash tax obligations and we expect our effective tax income –
effective income tax rate to be approximately 20% regardless of
whether the valuation allowance remains in place or is released.
19. The statements identified in paragraphs 17-18 above were materially
false and misleading when made, and omitted from disclosure material facts
8
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necessary to not make the statements made misleading as regarded the Company’s
tax treatment and 2015 guidance.
20.
On May 6, 2015, Checkpoint filed its Form 10-Q with the SEC (the
“May 6 10-Q”) in which it falsely represented its quarterly income tax provisions
and other related financial statements.
21.
Specifically, in the following excerpt from the May 6 10-Q the entries
for other current assets, total current assets, total assets, other current liabilities,
total current liabilities, deferred income taxes, accumulated deficit, total
stockholders’ equity and total liabilities and stockholders’ equity were fraudulently
or recklessly disclosed to investors as an accurate reflection of the Company’s
financial status when in fact they were false and misleading.
9
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March 29, December 28,
201S
2014
(amounts in thousands)
AcE1
CURRENT ASSETS:
Cash and cash equivalents
$ 124,205
$ 135,537
100,696
131.720
95,579
21,245
91.860
25.928
Accounts receivable, net ofallowance of $7,917 and $8,526
Inventories
Other current assets
Defrred income taxes
Total Current Assets
REVENUE EQUIPMENT ON OPERATING LEASE net
PROPERTY, PLANT, AND EQUIPMENT, net
GOODWILL
OTHER INTANGIBLES, net
DEFERRED INCOME TAXES
OTHER ASSETS
5,310
5,557
347,035
390.602
1,021
77,022
1.057
76.332
164,027
60,980
173.569
64.940
23,088
25.284
6.882
6.264
TOTAL ASSETS
$ 679,437 $ 738,666
LIABILITIES AND EQUITY
CURRENT LIABILiTIES:
Short-tenn borrowings and current portion of long-term debt
$
224 $
236
Accounts payable
Dividend payable
36.523
21.384
48,929
Accrued compensation and related taxes
Other accrued expenses
20,205
37.208
27.511
44.204
Income taxes
Unearned revenues
Restructuring reserve
7,208
1,278
7.663
4,324
6.255
3.999
16.058
4A72
17,504
147.133
158.051
LONG-TERM DEBT, LESS CURRENT MATURiTIES
65.138
65.161
FINANCING LIABIUTY
31,187
33,094
ACCRUED PENSIONS
96,948
108.920
OTHER LONG-TERN LIABILITIES
DEFERRED INCOME TAXES
28.104
15,120
30,140
Additional capital
420.955
441.882
Accumulated deficit
Common stock in treasury, at cost, 4,035.912 and 4.03 5,912 shares
(13.076)
(71,520)
(12331)
(71,520)
Accumulated other comprehensive mcome. net of tax
(45.152)
(34.684)
295.807
327931
Accrued pensions - current
Other current liabilities
Total Current Liabilities
TOTAL STOCKHOLDERS' EQUiTY
TOTAL LIABIL1TIESAND STOCKHOLDERS' EQUITY
May 6 10-Q at 3.
10
1 5,369
$ 679.437 $ 738,666
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22.
Additionally, in the following excerpt from the May 6 10-Q the
entries for income tax expense, net loss, basic loss per share and diluted loss per
share were fraudulently or recklessly disclosed to investors as an accurate
reflection of the Company’s financial status when in fact they were false and
misleading.
Quarter
(13 weeks) Ended
March 29.
201
(amounts in thousands. except per share d a t a )
(Loss) earnings before income taxes
Income tax expense
March 30.
2014
(674)
1.091
71
L220
Net loss
$
(745) S
(129)
Net loss per common sha re:
Basic loss per share
$
(0.02) $
¶
(0.02) S
-
D1utedIosspershare
May 6 10-Q at 4.
23.
In the following excerpt from the May 6 10-Q the entries for net loss
and comprehensive (loss) income were also fraudulently or recklessly disclosed to
investors as an accurate re flection of the Company’s financial status when in fact
they were false and misleading.
(13 weeks) Laded
March 29.
2015
(mo*ut.n thousands)
Net loss
$
Other comprehensive (loss) income, net of tax:
Pension liability autments. net of tax benefit of$3 and $110
Foreign currency translation adjustment
Total other comprehensive (loss) income, net oftax
(745) S
May 6 10-Q at 5.
11
(129)
4.431
329
(14,899)
355
(10.468)
623
S (1 L213) $
Comprehensive (loss)income
March 30.
2011
554
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24.
Furthermore, in the following excerpt from the May 6 10-Q the entries
for balance/accumulated deficit and the net loss were fraudulently or recklessly
disclosed to investors as an accurate reflection of the Company’s financial status
when in fact they were false and misleading.
(amoomts in thoaaids)
Chekpeânt Sv items, Inc Stockholders
Accumulated
Other
Coinprehr.the Total
Additional Accuinu1atd
Amount Capital
Deficit
Sbr.c Amount Intone (Lou) Equity
Common Stock
Shares
Ba1aie, December 29, 2013
Net eI1zs
Exercise ofstock-ed compensatton and awards
released
45.434 S
Tricurv Stork
4,542 $ 434,336 5
(23.24)
4.036 5(71520)
S
356
36
1O.93
907
Tax benefit anstock-based cqci&,iiticc
943
(14)
(14)
Stock-based compensabon expense
5,781
Deferred cimp..t*iij11n
5.781
872
872
Pe— liability adt-ftnegis
(17263) (17.263)
Famp crcy translation adImmew
Balance, December 28, 2014
Net loss
Exerci,e of cck-based cipeibc*i aca iwu6
E.katd
(19.66
484
$
4,94
S
441,882 $
(12.331)
4.036 $(71,520) S
(19,66
(34,6i) $ 327.931
(745)
156
16
Tixbrnfjt an itock-b*se4ent
(745)
(1,084)
(1,06
(1)
(1)
1,459
1.459
Stock-based compensation
Deferred cnpenatplan
83
83
Di%idend ckcIared ($0.50 per share)
(21.384)
(21,394)
Peicci Ith1Iityadjusth
4.431
Pciei cencv trandation a djustmets
March 29, 2O15
2245 5 346.325
10.93
45.996 $ 4,600 S 420.55 S
(13.076)
4.O3 $(7I.5O) S
(45,151) S 295 807
May 6 10-Q at 6.
25.
4,431
(14.899) (14S9)
In the following excerpt from the May 6 10-Q the entries for net loss,
deferred taxes and other assets were fraudulently or recklessly disclosed to
investors as an accurate re flection of the Company’s financial status when in fact
they were false and misleading.
12
,
Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 13 of 32 PageID: 13
MMCh29,
2015
Quar-ter (13 weeks) ended
March
O14
Cash flows from operitingactivities:
Net loss
S
(745) S
(129)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
6.690
6,164
Amortization of debt issuance costs
Interest on financing liability
108
492
108
Defened taxes
Stock-based compensation
(41)
Depreciation and amoniwion
559
Provision for losses on accounts receivable
258
(93)
1,501
676
Excess tax benefit on stock-based compensation
(101)
(97)
(186)
29
1.459
(Gain) loss on disposal of fixed assets
172
Restructuring related asset in3painnent
Decrease (increase) in operating assets:
Accounts receivable
Inventories
Other assets
(Decrease) increase in operating liabilities:
Accounts payable
Income taxes
Unearned revenues current
Restructuring reserve
Other liabilities
24.578
(8.312)
24,279
(11,111)
3.856
3,995
(1003)
(1.084)
(13,209)
(2.376)
110
(1.414)
594
517)
(15.381)
(1 893)
May 6 10-Q at 7.
26. The May 6 10-Q also falsely stated that the Company had adequate
internal controls and procedures in place to ensure the accuracy of its financial
results contained in its filings with the SEC and provided via other outlets to
investors, falsely claiming the following:
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management, with the participation of the Chie f Executive Officer and
Acting Chief Financial Office r, conducted an evaluation ( as required by
Rule 13a-15 under the Securities Exchange Act o f 1934, as amended (the
Exchange Act)) of the effe ctiveness of our disclosure controls and
procedures (as define d in Rules 13a-15(e) and 15d- 1 5(e) under the Exchange
Act) as of the end of the period covered by this report. Based on that
13
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evaluation, our Chief Executive Officer and Acting Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of
the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting
that occurred during our first fiscal quarter of 2015 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
27. The May 6 10-Q also contained, attached to the filing as Exhibits 31.1
and 31.2, respectively, false and misleading certifications pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (“SOX”) executed by Defendants Babich and
Richard. These certifications falsely stated:
1. I have reviewed this Form 10-Q of Checkpoint Systems, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
14
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our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal
control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting;
5. The registrant’s other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant’s internal control over financial reporting.
15
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28.
The May 6 10-Q also included as Exhibit 32.1 a SOX certification
executed by Babich and Lucania which falsely stated that:
The undersigned executive officers of Checkpoint Systems, Inc. (the
“Company”) hereby certify that this Quarterly Report on Form 10-Q for the
quarter ended June 28, 2015 (the “Report”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, and the information contained in the Report fairly
presents, in all material respects, the financial condition and results of
operations of the Company.
29.
On August 4, 2015, the Company filed with the SEC its Form 10-Q
(the “August 4 10-Q”) in which it falsely represented its quarterly income tax
provisions and other related financial statements.
30.
Specifically, in the following chart from the August 4 10-Q, the
entries for other current assets, total current assets, total assets, other current
liabilities, total current liabilities, accumulated deficit, total stockholders’ equity
and total liabilities and stockholders’ equity contained were fraudulently or
recklessly put forth to investors as an accurate reflection of the Company’s
financial status when in fact they were false and misleading.
16
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June 2$, December 28,
(;immmouncs in thonmds)
20H
2014
99.104
5 135.537
109,643
92,462
24,733
131,720
91,860
25,928
ASSET
CURRENT ASSETS:
Cash and cash equivalents
5
Accounts receivable, net ofallowance of $7,642 and $8,526
Inventories
Other current assets
Deferred income taxes
Total Current Assets
REVENUE EQUIPMENT ON OPERATING LEASE, net
5.334
5.557
331276
390.602
1.060
1,057
77.336
76,332
166.083
173.569
OTHER INTANGIBLES, net
58.584
64.940
DEFERRED INCOME TAXES
OTHER ASSETS
22.901
5,934
25.284
6,882
$ 663174
S 738.666
$
$
PROPERTY, PlANT, AND EQUIPMENT, net
GOODWILL
TOTAL ASSETS
LIABILiTIES AND EQUITY
CURRENT LIABILITIES:
Short-term borrowings and current portion of long-term debt
186
236
Accounts payable
41,122
48.928
Accrued corripensation and related taxes
19,245
27.511
Other accrued expenses
Income taxes
36,860
44,204
-
1,278
8,337
3.089
4,104
7,663
6155
Other current liabilities
16.519
17.504
Total Current Liabilities
129.462
158.051
LONG-TERM DEBT. LESS CURRENT MATURITIES
FINANCING LIABILITY
65.146
31,349
65.161
33,094
ACCRUED PENSIONS
99.306
108.920
OTHER LONG-TERM LIABILITIES
28,682
30.140
DEFERRED INCOME TAXES
COMMITMENTS AND CONTINGENCIES
15.163
15,369
4.612
4,584
424,067
(18,483)
441.882
(12.331)
(71,520)
(44,610)
(71.520)
(34,684)
294,066
327,931
Unearned revenues
Restructurmgreserve
Accrued pensions —current
4.472
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 500,000 shares authorized, none issued
Common stock, par value S. 10 per share. 100,000,000 shares authorized, 46.117.768 and
45,840.171 shares issued. 42,081,956 and 41,904,259 shares outstanding
Additional capital
Accumulated deficit
Common stock in treasury, at cost. 4,03 5,912 and 4.035,912 shares
Accumulated other comprehensive (loss) income, net of tax
TOTAL STOCKHOLDERS EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
August 4 10-Q at 3.
17
$ 663,174 S 738,666
Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 18 of 32 PageID: 18
31. Additionally, in the following chart from the August 4 10-Q, the
entries for the income tax expense, net loss, basic loss per share and diluted loss
per share were fraudulently or recklessly put forth to investors as an accurate
reflection of the Company’s financial status when in fact they were false and
misleading.
(Loss) earnings before income taxes
Income tax (benefit) expense
(6.105)
(698)
Net (loss) earnings
1L631
L777
6.779)
627)
12.722
1997
$
(54O7) S
9.854 $
6152) $
9.725
$
$
(0.13) $
(0.13) $
0.23 $
0.23 $
(0.14) $
(0.14) $
0.23
0.23
Net (loss) earnings per commom share:
Basic (loss) earnings per share
Diluted (loss) earnings per thaiie
August 4 10-Q at 4.
32.
In the following chart from the August 4 10-Q, the entries for net loss
and comprehensive (loss) income were fraudulently or recklessly disclosed to
investors as an accurate re flection of the Company’s financial status when in fact
they were false and misleading.
Quarter
&I inoithi
(13 weeks) Ended
(26 wtkc) Ended
23,
2015
3DM
(amounts in thousands)
Net (loss) eammgs
Other comprehensiv (loss) income, net of tax:
$
Pension liability adjustments, net of tax benefit of $432. Si 12,
$435 and $222. respectively
Foreign currency translation adjustment
(5.407) $
(489)
1,031
Total other comprehensive income (loss). net of tax
$
542 $
Comprehensive loss) income
$
(4.865) $
(
29,
2011
1DM
9.854 $
277
470
747 $
June 28.
2015
(6.152) S
3,942
(13,868)
555
875
1,430
10.601 S (16.078) S
11,155
Furthermore, in the following chart from the August 4 10-Q, the
entries for balance/accumulated deficit and the net loss were fraudulently or
18
9.725
(9.926) $
August 4 10-Q at 5.
33.
June 2.
2014
Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 19 of 32 PageID: 19
recklessly disclosed to investors as an accurate reflection of the Company’s
financial status when in fact they were false and misleading.
(amounts in thousands)
'Common Stock
Treasury Stock
Additional AcimIted
Shares Amount Capital
Deficit
Balance, December 29, 2013
Net e1r
Emercue ofstock-based
released
45.484 $
4j43 $ 434336 S
(23,294)
k-
Shares Amount
Accumulated
Other
compreheash-C Total
hieo.nr (Lc) Equity
4036 $(71.520) $
10.953
compensation and awards
356
36
Tx beifit an stock-1sed cpsaticc
907
943
(14)
(14)
5,781
Stock-bid cclrIpecIticl1 expee
Deferred ccpisaticnplan
5,781
172
872
Frein currency trauslatica ausniem
Balance, December 28, 2014
Net 10
Excie of stock-beed compensaizen and iwaM
released
41840 5 4.584 S 441,8*2 S
278
28
4.036 S(7L520) S
(19.666)
(19.666)
(34,694)$ 327,931
(6,52)
(9)
(223)
2,999
Z998
891
Divided declared ($OiOpr Aare)
$91
(21.384)
(21,38)
3,942
liability adjustments
Foreign cry franthtim au!mrm
BaInce. June 28. 2015
(17.263)
(223)
c,rntiii expense
Deferred c..thu1pI
Fewaca
(12331)
(17.263)
(6,152)
Tax beifit m stork-based cpitk
Stock-bed
2,245 S 346,325
10,953
(13,
46.118 S 4.612 S 424.067 S
(18.493)
4.036 5(7120) S
3,942
(13,96
(44 610)S 294.066
,
August 4 10-Q at 6.
34. Finally, in the following chart from the August 4 10-Q, the entries for
net loss, deferred taxes and other assets were fraudulently or recklessly disclosed to
investors as an accurate re flection of the Company’s financial status when in fact
they were false and misleading.
19
Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 20 of 32 PageID: 20
(ammairs in thoasds)
June 28
Six mouths (26 weeks) ended
201
Cash flows from operating activities:
Net (loss) earnings
$
(6.152) $
June 19
2014
9,725
Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating
activities:
Depreciation and amortization
Amortization of debt issuance costs
13206
217
Interest on financing liability
Defrned taxes
Stock-based compensation
Provision far losses on accounts receivable
Excess tax benefit on stock-based compensation
(Gain) loss on disposal of fixed assets
Restructuring related asset impairment
Decrease (increase) in operating assets:
Accounts receivable
Inventories
Other assess
(Decrease) increase in operating liabilities:
Accounts payable
Income taxes
Unearned revenues -current
Restructuring reserve
Other liabilities
217
980
(39)
1.127
(194)
2,998
204
(99)
2.898
473
(79)
(195)
-
81
172
16,646
26,398
(4.908)
534
(16.527)
3,357
(5.419)
(7.625)
(1.137)
1.133
(2,341)
985
(2,742)
(15,588)
(2,437)
(7,421)
August 4 10-Q at 7.
35. The August 4 10-Q also contained substantially similar Controls and
Procedures disclosures referenced in ¶26 and attached to the filing as Exhibits 31.1
and 31.2, respectively, SOX certifications executed by Defendants Babich and
Richard substantially similar to the certifications referenced in ¶27. The August 4
10-Q also attached as Exhibit 32.1 a SOX certification executed by Defendants
Babich and Richard substantially similar to the certification referenced in ¶28.
20
12.490
Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 21 of 32 PageID: 21
The Truth Begins to Emerge
36.
On November 3, 2015, after the close of trading, the Company issued
an 8-K with the SEC admitting that:
During the preparation of the third quarter financial statements, the
Company discovered financial statement errors attributable to the accounting
for its quarterly income tax provision. As a result of these errors, on
November 2, 2015, the Audit Committee of the Board of Directors (the
“Audit Committee”) of Checkpoint Systems, Inc. (the “Company”)
concluded that the unaudited financial statements for the quarterly period
ended March 29, 2015, the quarterly period ended June 28, 2015 and the
year-to-date period ended June 28, 2015 contained in the Company’s
Quarterly Reports on Form 10-Q for the quarterly period ended March 29,
2015 and the quarterly period ended June 28, 2015 should no longer be
relied upon due to the effect of financial statement errors that are
attributable to an error in the accounting for the Company’s quarterly
income tax provision. Accordingly, investors should no longer rely upon
the Company’s previously-issued financial statements for these periods
and any earnings releases or other Company communications relating
to these periods . The Company intends to restate its previously-issued
financial statements for the quarterly periods ended March 29, 2015 and
June 28, 2015 and the six month period ended June 28, 2015 through the
filing of amended Quarterly Reports on Form 10-Q/A for the quarterly
periods ended March 29, 2015 and June 28, 2015. These amended Quarterly
Reports on Form 10-Q/A will be filed with the Securities and Exchange
Commission (“SEC”) as soon as possible. 1
37.
The following day, November 4, 2015, the Company filed with the
SEC on Forms 10-K/A and 10-Q/A, restated financial reports for the affected time
periods.
38.
1
The Company restated the May 6 10-Q as follows:
November 3 8-K. Unless otherwise noted, all emphasis has been added by counsel.
21
Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 22 of 32 PageID: 22
March N. 2015
As Priuilv
Reported
(amounts in thousands)
Otbercunnt assets
Total cunent assets
Total assets
Other current liabilities
Total current liabilities
Defined income taxes
5
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
21.245
347.035
679.437
Restatement
.'idstluents
S
.s Restated
18.464
344,254
676,656
(2.781) S
(2.781)
(2.781)
16.058
(345)
15.713
147,133
15,120
(345)
(622)
146,788
14,498
(13.076)
295,807
679A37
(1,814)
(1.814)
(2.781)
(14,890)
293.993
676656
Quarter (13 Weeks) Ended
March 29, 2015
As Presioush
Reported
(amounts in thousands)
Income lax expense
$
71
Net loss
(745)
Basic loss pier share
Diluted loss per share
(0.02)
(002)
Restatement
Adjustments
$
As Restated
1,814 $
(1,814)
1.885
(2.559)
(0.04)
(004)
(0.06)
(006)
CIIEC1PO1NT SYSTEMS, rc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Quarter (U Weeks) Ended
March 29, 2015
As Presioush
(amounts in thousand;)
Net loss
Comprehensive loss
S
Restatement
Reported
Adjustments
As Restated
(745) S
(1.814) S
(2.559)
(11.213)
(1.814)
(13.027)
CHECKPOINT SYSTEMS, INC.
CONSOLATED STATEMENTS OF EQUITY
(Ijns udi ted)
March 29, 201.r.
As Presioush
Reported
(amounts in thousands)
Net loss
Accumulated deficit balance. March 29. 2015
$
Total equity
Restatement
Adjustments
As Rstated
(745) $
(13.076)
(1.814) $
(1.814)
(2559)
(14.890)
295.807
(1,814)
293.993
CHECKPOLNT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Quarter (13 Weeks) Ended
March 29, 2015
Al P,otul
Reported
(amounts in thousand;)
Net loss
$
Deferred taxes
(145) $
(41)
Other assets
3.856
Restatement
Adjustments
As Restated
(1.814) S
967)
2381
Checkpoint November 4, 2015 Form 10-Q/A, period of report March 29, 2015, at
10-11.
22
(2559)
(1.008)
6.637
Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 23 of 32 PageID: 23
39. The Company restated the August 4 10-Q as follows:
June 29, 201 5
M Pttuh
Reported
(amounts in tiou.d)
Othercunnt assets
$
24.733 S
Restatement
Adjustments
(6.866) $
As Restated
17867
Total cuirent assets
331,276
(6.866)
324.410
Total assets
Other cunent liabilities
663.174
16.519
(6,866)
(345)
65630
Total cunnt liabilities
Defened income taxes
129.462
15,163
(345)
(622)
Accumulated deficii
(18.483)
(5 1899)
(24.382)
Total stockholders 'equity
294.066
(5.899)
288.167
Total liabilities and sockbo1deis' equity
663174
6.966)
656.308
23
16374
129,117
14,541
Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 24 of 32 PageID: 24
Quarter (13 Weeks) Ended
Six Months (26 Weeks) Ended
June 28, 2015
(amounts in thousands)
Income tax benefit)expense
As Presicustv
Reported
698) S
$
Net loss
Basic loss per share
Diluted loss per share
Restatement
Adjustments
June 28, 2015
As Restated
4.085 S
As Presiouclv
Reported
3387 S
(627) $
Restatement
Adjustments
As Rusted
5899 $
(5.407)
(4.085)
(9492)
(6.152)
(5.899)
5.272
(12,051)
(013)
(0.13)
(0.09)
(0.09)
(022)
(0.22)
(014)
(0.14)
(014)
(0.14)
(028)
(028)
CHECKPOINT SYSTEMS, INC.
CONSOL]DATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Quarter (13 Weeks) Ended
Six Months (26 Weeks) Ended
June 28, 2015
(amounts in thousands)
Net loss
Comprehensive loss
As Pre'sicnclv
Reported
$
Restatement
Adjustment;
June 28, 2015
As Restated
As Previously
Reporte.à
(5.407) S
4.085) S
(9.492) S
(4.865)
(4.085)
(8.950)
(6,152) $
(16.078)
Restatement
Adjustments
As Restated
(5.899) S (12.051)
(5.899)
(21.977)
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
June 28, 2015
(amounts in thousands)
Net loss
Accumulated deficit balance, June 28. 2015
As Presiousl't
Restatement
Reported
Adjustments
S
Total equity
(6.152) $
(18,483)
(5.899) 5
(5,899)
294.066
(5.899)
As Restated
(12.051)
(24382)
288.167
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months (26 Weeks) Ended
June 28, 2015
As Previously
Reported
(amounts in thousands)
Net loss
Defend taxes
$
(6,152) $
(39)
534
Other assets
Restatement
Adjustments
(5,899) S
(967)
6.866
As Resisted
(12,051)
(1,006)
7,400
Checkpoint November 4, 2015 Form 10-Q/A, period of report June 28, 2015, at
10-11.
40. Checkpoint’s stock price plunged on November 4, 2015 after the
revelation of the accounting errors and unreliability of the prior financial results,
falling by $1.73 per share, or more than 22%, as a direct result of the information
disseminated in the November 3 8-K.
24
Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 25 of 32 PageID: 25
CLASS ACTION ALLEGATIONS
41.
Plaintiff brings this action as a class action pursuant to Rule 23 of the
Federal Rules of Civil Procedure on behalf of a Class of all persons and entities
who purchased or otherwise acquired Checkpoint common stock between March 5,
2015, and November 3, 2015, inclusive. Excluded from the Class are Defendants,
directors, and officers of Checkpoint, as well as their families and affiliates.
42.
The members of the Class are so numerous that joinder of all
members is impracticable. The disposition of their claims in a class action will
provide substantial benefits to the parties and the Court.
40. There is a well-defined community of interest in the questions of law
and fact involved in this case. Questions of law and fact common to the members
of the Class which predominate over questions which may affect individual Class
members include:
a.
Whether the Exchange Act was violated by Defendants;
b.
Whether Defendants omitted and/or misrepresented material
c.
Whether Defendants’ statements omitted material facts
facts;
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading;
25
Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 26 of 32 PageID: 26
d.
Whether Defendants knew or recklessly disregarded that their
statements were false and misleading;
e.
Whether the price of Checkpoint common stock was
artificially inflated; and
f.
The extent of damage sustained by Class members and the
appropriate measure of damages.
41.
Plaintiff’s claims are typical of those of the Class because Plaintiff
and the Class sustained damages from Defendants’ wrongful conduct alleged
herein.
42.
Plaintiff will adequately protect the interests of the Class and has
retained counsel who are experienced in class action securities litigation. Plaintiff
has no interests that conflict with those of the Class.
43.
A class action is superior to other available methods for the fair and
efficient adjudication of this controversy.
FRAUD ON THE MARKET
44.
Plaintiff will rely upon the presumption of reliance established by the
fraud-on-the-market doctrine in that, among other things:
a.
Defendants made public misrepresentations or failed to
disclose material facts during the Class Period;
b.
The omissions and misrepresentations were material;
26
Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 27 of 32 PageID: 27
c.
The Company’s common stock traded in efficient markets;
d.
The misrepresentations alleged herein would tend to induce a
reasonable investor to misjudge the value of the Company’s common stock; and
e.
Plaintiff and other members of the Class purchased
Checkpoint common stock between the time Defendants misrepresented or
failed to disclose material facts and the time the true facts were disclosed,
without knowledge of the misrepresented or omitted facts.
f.
At all relevant times, the markets for Checkpoint common
stock were efficient for the following reasons, among others: (i) Checkpoint
filed periodic public reports with the SEC; and (ii) Checkpoint regularly
communicated with public investors via established market communication
mechanisms, including through regular disseminations of press releases on the
major news wire services and through other wide-ranging public disclosures,
such as communications with the financial press, securities analysts and other
similar reporting services. Plaintiff and the Class relied on the price of
Checkpoint common stock, which reflected all the information in the market,
including the misstatements by Defendants.
NO SAFE HARBOR
45. The statutory safe harbor provided for forward-looking statements
under certain circumstances does not apply to any of the allegedly false statements
27
Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 28 of 32 PageID: 28
pleaded in this Complaint. The specific statements pleaded herein were not
identified as forward-looking statements when made.
46.
To the extent there were any forward-looking statements, there were
no meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those in the purportedly forward-looking
statements.
LOSS CAUSATION
47.
On November 3, 2015, after the close of the markets, Checkpoint
disclosed that its “unaudited financial statements for the quarterly period ended
March 29, 2015, the quarterly period ended June 28, 2015 and the year-to-date
period ended June 28, 2015 contained in the Company’s Quarterly Reports on
Form 10-Q for the quarterly period ended March 29, 2015 and the quarterly period
ended June 28, 2015 should no longer be relied upon due to the effect of financial
statement errors.” On November 4, 2015 Checkpoint’s stock price declined by
$1.73 per share, or more than 22%, on these disclosures. This decline was directly
attributable to the revelations of the accounting errors and unreliability of
Checkpoint’s financial reports.
28
Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 29 of 32 PageID: 29
FIRST CLAIM
Violation of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated
Thereunder
(Against All Defendants)
48.
Plaintiff repeats and realleges each and every allegation contained
above as if fully set forth herein.
49.
During the Class Period, Defendants disseminated or approved the
false statements specified above, which they knew or deliberately disregarded were
misleading in that they contained misrepresentations and failed to disclose material
facts necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
50.
Defendants violated §10(b) of the Exchange Act and Rule 10b-5 in
that they (i) employed devices, schemes, and artifices to defraud; (ii) made untrue
statements of material fact and/or omitted to state material facts necessary to make
the statements not misleading; and (iii) engaged in acts, practices, and a course of
business which operated as a fraud and deceit upon those who purchased or
otherwise acquired Checkpoint securities during the Class Period.
51.
Plaintiff and the Class have suffered damages in that, in reliance on
the integrity of the market, they paid artificially inflated prices for Checkpoint
common stock. Plaintiff and the Class would not have purchased Checkpoint
common stock at the price paid, or at all, if they had been aware that the market
29
Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 30 of 32 PageID: 30
prices had been artificially and falsely inflated by Defendants’ misleading
statements.
SECOND CLAIM
Violation of Section 20(a) of the Exchange Act
(Against Individual Defendants)
52.
Plaintiff repeats and realleges each and every allegation contained
above as if fully set forth herein.
53.
The Individual Defendants acted as controlling persons of Checkpoint
within the meaning of Section 20(a) of the Exchange Act as alleged herein. By
virtue of their high-level positions at the Company, the Individual Defendants had
the power and authority to cause or prevent Checkpoint from engaging in the
wrongful conduct complained of herein. The Individual Defendants were provided
with or had unlimited access to the fraudulent SEC filings and other reports alleged
by Plaintiff to be misleading both prior to and immediately after their publication,
and had the ability to prevent the issuance of these materials or cause them to be
corrected so as not to be misleading.
PRAYER FOR RELIEF
WHEREFORE , Plaintiff prays for relief and judgment, as follows:
1. Determining that this action is a proper class action pursuant to Rule
23(a) and (b)(3) of the Federal Rules of Civil Procedure on behalf of the Class
Classes as defined herein, and a certification of Plaintiff as class representatives
30
Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 31 of 32 PageID: 31
pursuant to Rule 23 of the Federal Rules of Civil Procedure and appointment of
Plaintiff’s counsel as Lead Counsel;
1.
Awarding compensatory and punitive damages in favor of Plaintiff
and the other Class members against all Defendants, jointly and severally, for all
damages sustained as a result of Defendants’ wrongdoing, in an amount proven at
trial, including pre-judgment and post-judgment interest thereon;
2.
Awarding Plaintiff and other members of the Class their costs and
expenses in this litigation, including reasonable attorneys’ fees and experts’ fees
and other costs and disbursements; and
3.
Awarding Plaintiff and the other Class members such other relief as
this Court may deem just and proper.
31
Case 1:15-cv-08007-RBK-KMW Document 1 Filed 11/11/15 Page 32 of 32 PageID: 32
DEMAND FOR JURY TRIAL
Plaintiff hereby demands a trial by jury in this action of all issues so triable.
DATED: November 11, 2015
GARDY & NOTIS, LLP
By: /s/ Jennifer Sarnelli
Mark C. Gardy
Jennifer Sarnelli
560 Sylvan Avenue, Suite 3085
Englewood Cliffs, New Jersey 07632
(201) 567-7377 phone
(201) 567-7337 fax
mgardy@gardylaw.com
jsarnelli@gardylaw.com
BLOCK & LEVITON LLP
Jeffrey C. Block
Steven P. Harte
Bradley J. Vettraino
155 Federal Street, Suite 400
Boston, Massachusetts 02110
Tel: (617) 398-5600
Fax: (617) 507-6020
Jeff@blockesq.com
Steven@blockesq.com
Brad@blockesq.com
Counsel for Plaintiff
32