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Checkpoint Systems Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 3, 2012 08:00AM
Checkpoint Systems Inc. (CKP) filed Quarterly Report for the period ended 2012-03-25. Checkpoint Sys has a market cap of $442.2 million; its shares were traded at around $11.14 with a P/E ratio of 28.1 and P/S ratio of 0.5.
Highlight of Business Operations:At March 25, 2012, the financial statements reflected the preliminary allocation of the purchase price based on estimated fair values at the date of acquisition, including $17.1 million in Property, Plant, and Equipment, $7.1 million in Accounts Receivable, and $2.2 million in Inventories. This preliminary allocation resulted in acquired goodwill of $59.7 million and intangible assets of $10.5 million. The intangible assets were composed of a non-compete agreement ($0.3 million), customer lists ($9.8 million), and trade names ($0.4 million). The useful lives were 5 years for the non-compete agreement, 10 years for the customer lists, and 7.5 months for the trade names. The Company continues to evaluate certain assets and liabilities related to this business combination. Additional information, which existed as of the acquisition date but was at that time unknown to the Company, may become known during the remainder of the measurement period. Changes to amounts recorded as assets or liabilities may result in a corresponding adjustment to goodwill. Also, the allocation of the purchase price remains open for quantification of acquired income and non-income based tax exposures, certain information related to deferred income taxes, and finalization of the 2010 performance payment amount due. The measurement period is expected to be completed by May of 2012. The tax deductible portion of the acquired goodwill will also be determined during the measurement period. The results from the acquisition for the three months ended March 25, 2012 are included in the Apparel Labeling Solutions segment and were not material to the Consolidated Financial Statements (revenues of $9.7 million and a net loss of $0.2 million).
Beginning in the second quarter of 2008, we entered into various foreign currency contracts to reduce our exposure to forecasted Euro-denominated inter-company revenues. These contracts were designated as cash flow hedges. The foreign currency contracts mature at various dates from April 2012 to March 2013. The purpose of these cash flow hedges is to eliminate the currency risk associated with Euro-denominated forecasted inter-company revenues due to changes in exchange rates. These cash flow hedging instruments are marked to market and the changes are recorded in other comprehensive income. Amounts recorded in other comprehensive income are recognized in cost of goods sold as the inventory is sold to external parties. Any hedge ineffectiveness is charged to other gain (loss), net on our Consolidated Statements of Operations. As of March 25, 2012, the fair value of these cash flow hedges were reflected as a $0.6 million asset and a $29 thousand liability and are included in other current assets and other current liabilities in the accompanying Consolidated Balance Sheets. The total notional amount of these hedges is $24.0 million (€17.6 million) and the unrealized loss recorded in other comprehensive income was $1.1 million (net of taxes of $19 thousand), of which $1.1 million (net of taxes of $19 thousand) is expected to be reclassified to earnings over the next twelve months. During the three months ended March 25, 2012, a $0.4 million expense related to these foreign currency hedges was recorded to cost of goods sold as the inventory was sold to external parties, respectively. The Company recognized $40 thousand of hedge ineffectiveness during the three months ended March 25, 2012.
Revenues for the first quarter of 2012 compared to the first quarter of 2011 decreased $19.6 million, or 10.8%, from $181.9 million to $162.3 million. Foreign currency translation had a negative impact on revenues of approximately $2.6 million, or 1.4%, in the first quarter of 2012 as compared to the first quarter of 2011.
Shrink Management Solutions (SMS) revenues decreased $16.6 million, or 13.5%, during the first quarter of 2012 compared to the first quarter of 2011. Foreign currency translation had a negative impact of approximately $1.6 million. The remaining decrease of $15.0 million in Shrink Management Solutions was due to declines in organic growth in Alpha®, EAS consumables, and CheckView®. These decreases were partially offset by an increase in EAS systems.
Apparel Labeling Solutions revenues decreased $1.0 million, or 2.3%, in the first quarter of 2012 as compared to the first quarter of 2011. After considering the foreign currency translation negative impact of approximately $0.5 million, the remaining decrease of $0.5 million was due to a $10.2 million decline in organic revenues, primarily due to declines in sales volumes across all geographies. The weakness in these markets is broad based. A large portion of our Europe customer base includes hyper-markets and mainstream apparel retailers which have seen a significant impact from the economic downturn. In the U.S., retailers are recovering slowly. As a result, we have seen a cautious approach to purchases from apparel vendors that resulted in delays in peak season ordering. This decline in revenues was partially offset by $9.7 million in revenues from the acquisition of Shore to Shore on May 16, 2011.
Stocks Discussed: CKP,