CSK Auto sets sights on going public; needs to raise millions to pay off heavy debt

Discount Store News, Jan 26, 1998

PHOENIX, Ariz. -- Despite sitting on an accumulated deficit of almost $200 million, CSK Auto again is attempting to go public.

It hopes to raise a gross of $172.5 million for a minority stake in the company, most of which would be used to pay down long-term debt.

The S-1 IPO filing in late December showed the company is highly leveraged, carrying $369 million in long-term debt and a total stockholders deficit of $92.4 million. Tangible book value stood at a deficit of $74.6 million.

Its accumulated deficit stood at $199.2 million, caused in part by $38.9 million in net losses in four of the last five fiscal years, '92, '93, '95 and '96.

In fiscal year '94, CSK logged a net profit of $106 million, largely because $97.2 million of its long-term debt was written off.

Principals originally behind CSK, named after the initials of its three operating chains, Checker, Schuck's and Kragen, were Ed and Jules Trump, New York financiers who have no relation to Donald Trump, the New York real estate developer. At one time, the aftermarket group the Trumps assembled also included AutoWorks, subsequently sold to Hahn Automotive Warehouse and then liquidated last fall.

Jules Trump stepped down as chairman and ceo in January 1997, when Maynard Jenkins succeeded him. Previously, Jenkins served as ceo of Orchard Supply Hardware, a chain Sears acquired last year.

In June 1996, CSK filed to go public. But when that effort failed, Investcorp bought a 51% controlling stake in October 1996, for $105 million.

Investcorp is a London-based holding company that funnels Middle Eastern oil money into world-wide investments.

Two previous Investcorp investments in U.S. retailing were Sak's Fifth Avenue and Sports & Recreation, a Tampa, Fla., sporting goods chain now called JumboSports. Investcorp subsequently took both companies public, as it is attempting to do with CSK Auto, formerly called Northern Automotive.

The lead underwriter, Donaldson, Lufkin and Jenrette, expects to launch the IPO sometime around mid to late February, even though the climate for IPOs remains cloudy and key details of the IPO are undisclosed, such as:

* The number of shares to be offered;

* The expected price per share;

* The number of shares key investors own, including a Cayman Islands subsidiary of Investcorp;

* The percentage stake the public would own if the IPO goes through.

Pricing remains to be set, but in June 1996, its filing stated it expected to sell 6.7 million shares at $14 to $16 per share, for a gross of $93.8 million to $107.5 million.

In the refiling, CSK didn't disclose the number of shares to be sold or the expected price per share. But assuming the same price of $14 to $16 and with the stated goal of raising $172.5 million gross, the indicated number of shares would be around 11.5 million.

Conversely, assuming the same number of shares (6.7 million) the expected gross of $172.5 million indicates that CSK hopes to price its shares at more than $25.

CSK expects to net $139 million and use most of it to pay down debt: $50 million worth in 12% notes, $43.8 million in 11% notes and $40.4 million in bank debt. That would still leave $250 million in long-term debt on its balance sheet.

CSK floated $13.6 million of its debt in December when it bought 82 Trak Auto stores in Southern California for $35.6 million. Investment from equity partners provided $22 million of the purchase price.

Prior to the Trak purchase, CSK operated 695 stores in the Southwest and Rocky Mountain regions (Checker), the Pacific Northwest (Schuck's), and California (Kragen).

In the IPO filing, CSK said its stores stock 13,000 to 16,000 skus and can get same day delivery of 200,000 additional parts. For second day delivery, CSK can get 1 million other parts.

Store size averages 5,775 sq. ft.

Among company innovations, CSK said it established a Precision Pricing Program in the third quarter of fiscal year '97 that allows each store to set prices according to local competition.

Commercial sales to professional installers, available at 330 stores, contributed $87.7 million, or 13.8% of total revenues in the nine months ended Nov. 2, 1997.

It said it improved its operating profit margin to 5.7% for the nine months from 3.6% in the same span of fiscal year '96.

The filing stated that operating profit improved to $36.2 million for the nine months from $21.5 million. CSK reported a net profit of $3.9 million for the nine months ended Nov. 2, 1997, on sales of $636.5 million.