Due by 12/08. Thank you.

1-3 were answered on a previous post by another user. Need help with 4-7. Thank you.

4. On March 1, 2000, the company participated in the formation of a new joint venture, PartsAmerica.com (PA) by acquiring 37 percent of the outstanding equity of PA. The company accounted for its investment in PA under the equity method. a. What financial effects did the company record to reflect its investment in PartsAmerica on its financial statements? b. During fiscal 2000, the company recognized its proportionate share of PA's net loss and wrote off the remaining investment in the joint venture. What did the company record to reflect these events in its financial statements? 5. CSK Auto reports that included in property and equipment (net) are assets under capital leases (net of accumulated depreciation) of $38.067 million and $35.676 million on February 4, 2001 and January 30, 2000, respectively. Consider the information on leases provided in the financial statements and footnotes. a. What cash payment is CSK Auto expecting to make for operating leases for the year ending February 4, 2002? b. What financial effects will CSK Auto record for its capital leases for the year ending February 4, 2002? 6. CSK Auto recognizes income taxes based on pretax income. a. What financial effects did CSK record to recognize income taxes in 2000? b. Has CSK Auto reported more or less income to its shareholders cumulatively through February 4, 2001, than to the tax authorities? How much more or less? 7. On February 4, 2001, CSK Auto's share price closed at $6.10 per share. Using the residual income valu- ation model, calculate the equity value of the company. Assume that the company's cost of equity is approximately 10.4 percent. Top management thinks the share price should be considerably higher. How would you explain the situation to management? (continued from previous page) CSK AUTO CORP. Consolidated Balance Sheet ($ thousands) 02/04/01 01/30/00 Stockholders' equity Common stock, $0.01 par value, 50,000,000 shares authorized, 27.841.178 and 27,834,574 shares issued and outstanding at February 4, 2001, and January 30, 2000, respectively ...... Additional paid-in-capital. ..... Stockholder receivable.... Deferred compensation ..... Accumulated deficit ........ Total stockholders' equity ........... Total liabilities and stockholders' equity. ... 278 291,063 (745) (156) (150,827) 139,613 $1,076,981 278 291,004 (584) (324) (155,827) 134,547 $1,035,652 CSK AUTO CORP. Consolidated Statements of Income ($ thousands) 2/4/01 1/30/00 1 /31/99 $1,452,109 769,043 683,066 $1,231,455 636,239 595,216 $1,004,385 531,073 473,312 Net sales. ....... Cost of sales. ..... Gross profit. ... ... ... Other costs and expenses.... Operating and administrative.... Store closing costs ........ Legal settlement ... Transition and integration expenses. Equity in loss of joint venture.......... Goodwill amortization ............... Write-off of unamortized management fee Secondary stock offering costs. ... 568,873 6,060 8,800 23,818 3,168 4,799 471,340 4,900 30,187 391,528 335 - 3,075 1,941 3,643 770 73,961 30,730 Operating profit ....... Interest expense, net .... 67,548 62,355 86,848 41,300 5,193 193 45,548 17,436 43,231 15,746 Income before income taxes, extraordinary loss and cumulative effect of change in accounting principle. ....... Income tax expense....... ............. Income before extraordinary loss and cumulative effect of change in accounting principle ............. Extraordinary loss, net of $4,236 of income taxes. ..... 5,000 28,112 27,485 (6,767) 5,000 28,112 20,718 Income before cumulative effect of change in accounting principle. ...... ........... Cumulative effect of change in accounting principle, net of $468 of income taxes ......... Net income........ ... $ (741) 27,371 5,000 $ $ 20,718 CSK AUTO CORP. Consolidated Statements of Cash Flow (s thousands) 02/04/01 01/30/00 01/31/99 $ 27,371 $ 20,718 20,930 26,066 1,941 761 607 1,406 393 919 563 1,016 184 11 - 6,767 741 3,643 15,542 193 15,637 (5,812) (93,567) 7,240 11,203 2,793 (811) (4,031) (21,056) (45,848) (200) 7,925 (947) (6,753) 3,403 Cash flows provided by (used in) operating activities Net income.................................... ..... $ 5,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization of property and equipment .. 33,120 Amortization of goodwill.............. 4,799 Amortization of leasehold interests ..... 1,841 Amortization of other deferred charges ..... 1,067 Amortization of deferred financing costs ...... 2,224 Tax benefit relating to stock option exercises ..... Equity in loss of joint venture..... 3,168 Extraordinary loss on early retirement of debt, net of income taxes ... Cumulative effect of change in accounting principle, net of income taxes Write-off of unamortized deferred charge .. Deferred income taxes... Change in operating assets and liabilities, net of effects of acquisitions ... - Receivables ....... (11,915) Inventories (7,577) Prepaid expenses and other current assets ... (208) Accounts payable ......... 25,172 Accrued payroll, accrued expenses and other current liabilities. (23,332) Other operating activities.. (1,083) Net cash provided by (used in) operating activities ........ 32,469 Cash flows provided by (used in) investing activities Business acquisitions, net of cash acquired ...... (1,182) Capital expenditures .... (32,080) Expenditures for assets held for sale. ... (5) Proceeds from sale of property and equipment and assets held for sale 5,029 Investment in joint venture....... (3,168) Due to affiliate ... - Other investing activities. (3,136) Net cash used in investing activities .... (34,542) Cash flows provided by (used in) financing activities Borrowings under Senior Credit Facility. ...... 309,500 Payments under Senior Credit Facility..... (291,840) Issuance of common stock in initial public offering... Underwriter's discount and other IPO costs ...... Premiums paid upon early retirement of debt ....... Retirement of 11% Senior Subordinated Notes....... Retirement of 12% Subordinated Notes ...... Payment of Senior Credit Facility with public offering proceeds Payment of debt issuance costs ... (1,815) Payments on capital lease obligations... (10,934) Advances to stockholders ......... (189) Recovery of stockholder receivable.... Exercise of options. ...... Other financing activities ... (3,367) Net cash provided by financing activities. ....... $ 1,442 Net increase (decrease) in cash and cash equivalents (631) Cash and cash equivalents, beginning of period...... 11,762 Cash and cash equivalents, end of period. ........ $ 11,131 (218,201) (41,358) (7,400) 8,760 - (892) (37,846) (19,144) 21,650 (2,022) (260,221) (1,000) (292) (37,524) 502,000 (218,340) ||||| III 126,000 (87,065) 172,482 (13,859) (4,875) (43,750) (50,000) (53,825) (4,730) (10,905) (8,634) 28 59 434 791 (726) $268,524 4,272 7,490 150 367 (232) $ 36,759 2,638 4,852 7,490 $ 11,762 $ CSK AUTO CORP. Consolidated Statements of Stockholders' Equity (Deficit) Common Stock Additional Paid-in Shareholder Deferred Shares Amount Capital Receivable Compensation Total Equity (Deficit) Accumulated Deficit ($ thousands) 19,113,388 $191 $130,513 $(1,168) $(203,916) $(675) 182 $ (75,055) 182 150 150 8,625,000 30,444 1 158,537 220 366 184 20,718 (183,198) 27,768,832 278 289,820 (1,018) (493) 169 Balances at February 1, 1998 ........... Amortization of deferred compensation. ... Recovery of stockholder receivable. ...... Issuance of common stock in initial public offering, net of transaction costs Stock compensation. Exercise of options.... .... Tax benefit of options..... Net income....................... Balances at January 31, 1999 ........... Amortization of deferred compensation. Recovery of stockholder receivable Exercise of options. .... Tax benefit of options.... Net income.. Balances at January 30, 2000........ Amortization of deferred compensation. Recovery of stockholder receivable. Advances to stockholders ... Exercise of options..... Net income. Balances at February 4, 2001 ....... 158,623 220 367 184 20,718 105,389 169 434 791 393 27,371 134,547 434 65,742 791 393 27,371 (155,827) 27,834,574 278 291,004 (584) (324) 168 168 28 28 (189) 6,604 59 (189) 59 5,000 5,000 27,841,178 $278 $291,063 $(745) $(156) $(150,827) $139,613 Note 8: The Company leases its office and warehouse facilities, all but three of its retail stores, and a majority of its equipment. Generally, store leases provide for minimum rentals and the payment of utilities, mainte- nance, insurance and taxes. Certain store leases also provide for contingent rentals based upon a percentage of sales in excess of a stipulated minimum. The majority of lease agreements are for base lease periods ranging from 15 to 20 years, with three to five renewal options of five years each. Operating lease rental expense is as follows (in thousands): Fiscal Year 1999 1998 Minimum rentals. ........ Contingent rentals ....... Sublease rentals... 2000 $123,298 945 (6,970) $117,273 $97,748 976 (5,395) $93,329 $75,689 1,088 (5,089) $71,688 Future minimum lease obligations under noncancelable leases at February 4, 2001, follows: Operating Leases For Fiscal Years ($ thousands) 2001 2002. 2003 2004........ 2005....... Thereafter 115,549 103,244 87,459 77,683 387,218 $894,138 Capital Leases $14,800 13,387 10,002 6,496 1,456 3,410 49,551 9,400 Less amounts representing interest....... Present value of obligations Less: current portion ............. Long-term obligation .......... . 40,151 (10,878) $29,273 ....... 4. On March 1, 2000, the company participated in the formation of a new joint venture, PartsAmerica.com (PA) by acquiring 37 percent of the outstanding equity of PA. The company accounted for its investment in PA under the equity method. a. What financial effects did the company record to reflect its investment in PartsAmerica on its financial statements? b. During fiscal 2000, the company recognized its proportionate share of PA's net loss and wrote off the remaining investment in the joint venture. What did the company record to reflect these events in its financial statements? 5. CSK Auto reports that included in property and equipment (net) are assets under capital leases (net of accumulated depreciation) of $38.067 million and $35.676 million on February 4, 2001 and January 30, 2000, respectively. Consider the information on leases provided in the financial statements and footnotes. a. What cash payment is CSK Auto expecting to make for operating leases for the year ending February 4, 2002? b. What financial effects will CSK Auto record for its capital leases for the year ending February 4, 2002? 6. CSK Auto recognizes income taxes based on pretax income. a. What financial effects did CSK record to recognize income taxes in 2000? b. Has CSK Auto reported more or less income to its shareholders cumulatively through February 4, 2001, than to the tax authorities? How much more or less? 7. On February 4, 2001, CSK Auto's share price closed at $6.10 per share. Using the residual income valu- ation model, calculate the equity value of the company. Assume that the company's cost of equity is approximately 10.4 percent. Top management thinks the share price should be considerably higher. How would you explain the situation to management? (continued from previous page) CSK AUTO CORP. Consolidated Balance Sheet ($ thousands) 02/04/01 01/30/00 Stockholders' equity Common stock, $0.01 par value, 50,000,000 shares authorized, 27.841.178 and 27,834,574 shares issued and outstanding at February 4, 2001, and January 30, 2000, respectively ...... Additional paid-in-capital. ..... Stockholder receivable.... Deferred compensation ..... Accumulated deficit ........ Total stockholders' equity ........... Total liabilities and stockholders' equity. ... 278 291,063 (745) (156) (150,827) 139,613 $1,076,981 278 291,004 (584) (324) (155,827) 134,547 $1,035,652 CSK AUTO CORP. Consolidated Statements of Income ($ thousands) 2/4/01 1/30/00 1 /31/99 $1,452,109 769,043 683,066 $1,231,455 636,239 595,216 $1,004,385 531,073 473,312 Net sales. ....... Cost of sales. ..... Gross profit. ... ... ... Other costs and expenses.... Operating and administrative.... Store closing costs ........ Legal settlement ... Transition and integration expenses. Equity in loss of joint venture.......... Goodwill amortization ............... Write-off of unamortized management fee Secondary stock offering costs. ... 568,873 6,060 8,800 23,818 3,168 4,799 471,340 4,900 30,187 391,528 335 - 3,075 1,941 3,643 770 73,961 30,730 Operating profit ....... Interest expense, net .... 67,548 62,355 86,848 41,300 5,193 193 45,548 17,436 43,231 15,746 Income before income taxes, extraordinary loss and cumulative effect of change in accounting principle. ....... Income tax expense....... ............. Income before extraordinary loss and cumulative effect of change in accounting principle ............. Extraordinary loss, net of $4,236 of income taxes. ..... 5,000 28,112 27,485 (6,767) 5,000 28,112 20,718 Income before cumulative effect of change in accounting principle. ...... ........... Cumulative effect of change in accounting principle, net of $468 of income taxes ......... Net income........ ... $ (741) 27,371 5,000 $ $ 20,718 CSK AUTO CORP. Consolidated Statements of Cash Flow (s thousands) 02/04/01 01/30/00 01/31/99 $ 27,371 $ 20,718 20,930 26,066 1,941 761 607 1,406 393 919 563 1,016 184 11 - 6,767 741 3,643 15,542 193 15,637 (5,812) (93,567) 7,240 11,203 2,793 (811) (4,031) (21,056) (45,848) (200) 7,925 (947) (6,753) 3,403 Cash flows provided by (used in) operating activities Net income.................................... ..... $ 5,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization of property and equipment .. 33,120 Amortization of goodwill.............. 4,799 Amortization of leasehold interests ..... 1,841 Amortization of other deferred charges ..... 1,067 Amortization of deferred financing costs ...... 2,224 Tax benefit relating to stock option exercises ..... Equity in loss of joint venture..... 3,168 Extraordinary loss on early retirement of debt, net of income taxes ... Cumulative effect of change in accounting principle, net of income taxes Write-off of unamortized deferred charge .. Deferred income taxes... Change in operating assets and liabilities, net of effects of acquisitions ... - Receivables ....... (11,915) Inventories (7,577) Prepaid expenses and other current assets ... (208) Accounts payable ......... 25,172 Accrued payroll, accrued expenses and other current liabilities. (23,332) Other operating activities.. (1,083) Net cash provided by (used in) operating activities ........ 32,469 Cash flows provided by (used in) investing activities Business acquisitions, net of cash acquired ...... (1,182) Capital expenditures .... (32,080) Expenditures for assets held for sale. ... (5) Proceeds from sale of property and equipment and assets held for sale 5,029 Investment in joint venture....... (3,168) Due to affiliate ... - Other investing activities. (3,136) Net cash used in investing activities .... (34,542) Cash flows provided by (used in) financing activities Borrowings under Senior Credit Facility. ...... 309,500 Payments under Senior Credit Facility..... (291,840) Issuance of common stock in initial public offering... Underwriter's discount and other IPO costs ...... Premiums paid upon early retirement of debt ....... Retirement of 11% Senior Subordinated Notes....... Retirement of 12% Subordinated Notes ...... Payment of Senior Credit Facility with public offering proceeds Payment of debt issuance costs ... (1,815) Payments on capital lease obligations... (10,934) Advances to stockholders ......... (189) Recovery of stockholder receivable.... Exercise of options. ...... Other financing activities ... (3,367) Net cash provided by financing activities. ....... $ 1,442 Net increase (decrease) in cash and cash equivalents (631) Cash and cash equivalents, beginning of period...... 11,762 Cash and cash equivalents, end of period. ........ $ 11,131 (218,201) (41,358) (7,400) 8,760 - (892) (37,846) (19,144) 21,650 (2,022) (260,221) (1,000) (292) (37,524) 502,000 (218,340) ||||| III 126,000 (87,065) 172,482 (13,859) (4,875) (43,750) (50,000) (53,825) (4,730) (10,905) (8,634) 28 59 434 791 (726) $268,524 4,272 7,490 150 367 (232) $ 36,759 2,638 4,852 7,490 $ 11,762 $ CSK AUTO CORP. Consolidated Statements of Stockholders' Equity (Deficit) Common Stock Additional Paid-in Shareholder Deferred Shares Amount Capital Receivable Compensation Total Equity (Deficit) Accumulated Deficit ($ thousands) 19,113,388 $191 $130,513 $(1,168) $(203,916) $(675) 182 $ (75,055) 182 150 150 8,625,000 30,444 1 158,537 220 366 184 20,718 (183,198) 27,768,832 278 289,820 (1,018) (493) 169 Balances at February 1, 1998 ........... Amortization of deferred compensation. ... Recovery of stockholder receivable. ...... Issuance of common stock in initial public offering, net of transaction costs Stock compensation. Exercise of options.... .... Tax benefit of options..... Net income....................... Balances at January 31, 1999 ........... Amortization of deferred compensation. Recovery of stockholder receivable Exercise of options. .... Tax benefit of options.... Net income.. Balances at January 30, 2000........ Amortization of deferred compensation. Recovery of stockholder receivable. Advances to stockholders ... Exercise of options..... Net income. Balances at February 4, 2001 ....... 158,623 220 367 184 20,718 105,389 169 434 791 393 27,371 134,547 434 65,742 791 393 27,371 (155,827) 27,834,574 278 291,004 (584) (324) 168 168 28 28 (189) 6,604 59 (189) 59 5,000 5,000 27,841,178 $278 $291,063 $(745) $(156) $(150,827) $139,613 Note 8: The Company leases its office and warehouse facilities, all but three of its retail stores, and a majority of its equipment. Generally, store leases provide for minimum rentals and the payment of utilities, mainte- nance, insurance and taxes. Certain store leases also provide for contingent rentals based upon a percentage of sales in excess of a stipulated minimum. The majority of lease agreements are for base lease periods ranging from 15 to 20 years, with three to five renewal options of five years each. Operating lease rental expense is as follows (in thousands): Fiscal Year 1999 1998 Minimum rentals. ........ Contingent rentals ....... Sublease rentals... 2000 $123,298 945 (6,970) $117,273 $97,748 976 (5,395) $93,329 $75,689 1,088 (5,089) $71,688 Future minimum lease obligations under noncancelable leases at February 4, 2001, follows: Operating Leases For Fiscal Years ($ thousands) 2001 2002. 2003 2004........ 2005....... Thereafter 115,549 103,244 87,459 77,683 387,218 $894,138 Capital Leases $14,800 13,387 10,002 6,496 1,456 3,410 49,551 9,400 Less amounts representing interest....... Present value of obligations Less: current portion ............. Long-term obligation .......... . 40,151 (10,878) $29,273