P12.35 Integrative Case Analysis. CSK Auto Corp. is the largest retailer of automotive parts and accessories in the Western United States and one of the largest retailers of such products in the United States based on the number of stores. As of February 4, 2001, the company operated 1,152 stores as one fully integrated company under three brand names: Checker Auto Parts, Schuck's Auto Supply, and Kragen Auto Parts. Presented below is selected information from CSK Auto Corp.'s 2001 10-K report. Assume an effective tax rate of 40 percent. Required 1. On March 17, 1998, the Company completed an initial public offering (IPO). What was the average price (net of underwriting fees) that CSK sold its shares for? 2. In 1999, CSK Auto spent $260.221 million on investing activities. How did the company finance this investment? 3. On February 4, 2001, the company's share price was 56.10 per share. The Board of Directors believes that the company's share price is too low and has recommended a share buyback program. What would be the financial effect of a share buyback, and what accounts would be affected if the company repurchased ten percent of its outstanding shares? ($ thousands) 02/04/01 01/30/00 $ 11,762 69,129 625,480 Assets Cash and cash equivalents ....... Receivables, net of allowances of $4,236 and $3,294, respectively. Inventories .......................... Deferred income taxes............ Assets held for sale .. Prepaid expenses and other current assets.... Total current assets .... Property and equipment, net.... Leasehold interests, net.......... Goodwill, net ........ Other assets, net ............ Total assets............................ Liabilities and Stockholders' Equity Accounts payable......... Accrued payroll and related expenses......... Accrued expenses and other current liabilities ....... Current maturities of amounts due under Senior Credit Facility .... Current maturities of capital lease obligations.... Deferred income taxes. Total current liabilities. $ 11,131 79,901 621,814 3,133 1,497 19,169 736,645 175,358 20,244 130,544 14,190 $1,076,981 4,745 18,471 729,587 160,561 8,341 124,750 12,413 $1,035,652 $ 199,483 27,673 42,448 54,640 10,878 $ 168,770 38,910 50,663 3,340 9,893 1,417 335,122 272,993 Facility ........... Subordinated Notes ....... Obligations under capital leases Deferred income taxes.... 471,840 81,250 29,273 10,544 9,339 602,246 505,480 81,250 27,170 5,801 8,411 628,112 Othe Total noncurrent liabilities (continued) 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 2/4/01 (s thousands) 1/30/00 1 /31/99 $1,004,385 531,073 473,312 $1,452,109 769,043 683,066 - 568,873 6,060 8,800 23,818 3,168 4,799 $1,231,455 636,239 595,216 - 471,340 4,900 30,187 391,528 335 3,075 1,941 - 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 Operating profit ..... Interest expense, net ...... 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.. Income before cumulative effect of change in accounting principle......... Cumulative effect of change in accounting principle, net of $468 of income taxes Net income.......................................... 3,643 770 73,961 30,730 67,548 62,355 86,848 41,300 5,193 193 45,548 17,436 43,231 15,746 5,000 28,112 27,485 (6,767) 5,000 28,112 20,718 (741) 27,371 $ 5,000 $ $ 20.718 (s thousands) 02/04/01 01/30/00 01/31/99 $ 5,000 $ 27,371 $ 20,718 20,930 ........ ..... ... ...... .... - 33,120 4,799 1,841 1,067 2,224 26.066 1,941 761 607 1,406 393 919 563 1,016 184 3,168 - Cash flows provided by (used in) operating activities Net income............. Adjustments to reconcile net income to net cash provided by (used in) operating activities ........ Depreciation and amortization of property and equipment Amortization of goodwill. ....... Amortization of leasehold interests ...... Amortization of other deferred charges .... Amortization of deferred financing costs. Tax benefit relating to stock option exercises ..................... Equity in loss of joint venture......... 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 ......... Inventories .... Prepaid expenses and other current assets ................... Accounts payable ... Accrued payroll, accrued expenses and other current liabilities. Other operating activities.. Net cash provided by (used in) operating activities 6,767 - - 3,643 15,542 193 n eueiVADO . ........ .............................. ........ .... (11,915) (7,577) (208) 25,172 (23,332) (1,083) 32,469 741 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) shi acquired ............... (1,182) (32,080) (5) 5,029 (3,168) (218,201) (41,358) (7,400) 8.760 (892) (37,846) (19,144) 21,650 - (2,022) (3,136) (34,542) (1,000) (292) (37,524) (260,221) 309,500 (291,840) 502,000 (218,340) Cash flows provided by (used in) investing activities Business acquisitions, net of cash acquired. Capital expenditures .... Expenditures for assets held for sale. . . . . . . . . . ... Proceeds from sale of property and equipment and assets held for sale ...... Investment in joint venture.. Due to affiliate ......... Other investing activities ............. Net cash used in investing activities Cash flows provided by (used in) financing activities Borrowings under Senior Credit Facility. ............. Payments under Senior Credit Facility.. 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 .. Payments on capital lease obligations.. Advances to stockholders .... Recovery of stockholder receivable.... Exercise of options. . . . . . Other financing activities ............. Net cash provided by financing activities. Net increase (decrease) in cash and cash equivalents .. Cash and cash equivalents, beginning of period. .... Cash and cash equivalents, end of period. ......... 126,000 (87,065) 172,482 (13,859) (4,875) (43,750) (50,000) (53,825) 111 (1,815) (10,934) (189) (8,634) 28 59 (3,367) $ 1,442 (631) 11,762 $ 11,131 (4.730) (10,905) - 434 791 (726) $268,524 4,272 7,490 $ 11,762 150 367 (232) $ 36,759 2,638 4,852 $ 7,490