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In response to a recent post on Checkpoint, I thought I would go ahead and do a Rule Maker Ranker analysis
on them. Unfortunately, I didn't realize until I had finished the spreadsheet that I had actually done one
on Checkpoint Systems and not Checkpoint Software ... DOH! I guess this proves that even TMF staffers
aren't immune from simple mistakes.

In any event, here's an analysis for Checkpoint Systems. They are the #2 provider of Electronic
Article Surveillance (EAS) systems commonly found at most large retailers. They are also moving into the
barcode labeling system market with their recent acquistion of Meto. They do have sort of a repeat
purchase model since many of the article control tags are disposable, although I'm not real sure they have
any sort of a "moat" around their business. As the numbers below bear out, this company is in no real
danger of becoming a Rule Maker any time soon:

Financial Analysis Company Being Evaluated Competitor #1 Competitor #2 Competitor #3 Competitor #4

Checkpoint Systems Sensormatic Zebra TechnoloSentry Technology
CKP SRM ZBRA SKVY
Current PeriodYear-ago PerioYear-over-Year Current Period Current PeriodCurrent PeriodCurrent Period
2000 Q1 1999 Q1 Growth 2000 Q3 2000 Q1 2000 Q1
Income Statement . . .
Sales 162,561 81,754 98.8% 261,100 98,619 4,872
Cost of Goods Sold 96,556 50,627 90.7% 145,000 49,239 2,659
Net Income (669) 1,392 N/A 16,700 15,875 (1,734)
Shares Outstanding 30,189 30,590 -1.3%

Balance Sheet . . .
Cash & Equivalents 75,755 45,260 67.4% 171,400 298,478 990
Current Assets 391,232 259,218 50.9% 732,300 410,073 12,417
Short-term Debt 40,754 13,551 200.7% 56,100 50,388 3,300
Current Liabilitie 217,764 82,012 165.5% 356,800 88,070 7,147
Long-term Debt 371,751 157,942 135.4% 539,600 540 31,024

Cash Flow Stmt . . .
Cash from Ops 5,643 17,359 -67.5% 59,400 46,472 51
Cap. Expenditures 4,029 1,480 172.2% 12,900 2,577 13

Margins & Ratios . . . 1 1 1 0Competitors' Avera
Gross Margins 40.6% 38.1% 2.5 44.5% 50.1% 45.4% 46.7%
Net Margins -0.4% 1.7% -2.1 6.4% 16.1% -35.6% -4.4%
Cash-to-Debt 0.18 0.26 -30.4% 0.29 5.86 0.03 0.69
Net Cash -336750.0 -126233.0 N/A -424300.0 247550.0 -33334.0 -70028.0
Fool Flow Ratio 1.78 3.13 -43.0% 1.87 2.96 2.97 2.60
Cash King Margin 1.0% 19.4% -94.9% 17.8% 44.5% 0.8% 21.0%


Continue Here

Ranking Rule Makers

1) Brand Points (0-1) 3) Financial Dire Points (0-3)
Familiarity 1 Sales Growth 3
Openness 1 Gross Margins 3
Optimism 1 Net Margins 1
Legitimacy 1 Shares Outstandin 3
Inevitability 0 Cash-to-Debt 0
Solitariness 0 Fool Flow Ratio 3
Humor 0 Expansion Potenti 2
Subtotal 4 Subtotal 15

2) Financial Locatio Points (0-2) 4) Monopoly Statu Points (0-4)
Mass Market Habit 2 Gross Margins 0
Gross Margins 1 Net Margins 2
Net Margins 0 Net Cash 0
Cash-to-Debt 0 Fool Flow Ratio 4
Fool Flow Ratio 0 Convenience 2
Your Interest 1 Subtotal 8
Subtotal 4
5) Your Enjoymen 1

Total Score 32 Third Tier

Notes:

1) I used the pro-forma data for CKP to exclude some M&A activity related to the Meto acquisition and a one-
time accounting charge. It's debatable whether the accounting charge should have been included in the net
income calculations, but I thought I would give them the benefit of the doubt just to see where the
analysis would score in a "best case" scenario.

2) I used the pro-forma data for SRM to exclude some one time benefits due to restructuring reversals and
litigation settlements.

3) I used the pro-forma data for ZBRA to exclude some M&A activity they encountered during the past quarter.

4) I went ahead and gave CKP the maximum score under the "Mass Market Habit" category because of the
control tag part of their business, although one could easily argue that they deserve a much lesser score
here since that is a relatively small part of their business.

Fool On!

the LanceMan


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