Cash IsKing Inc
CashIsKingInc.,acalendaryear-end SECregistrant,isaleading automotiveretailandservicechain.Thecompanyoperates exclusivelyintheautomotiveaftermarketindustryandisengagedprincipallyintheretailsaleofautomotiveparts,tires,andaccessories,automotiverepairsandmaintenance,andtheinstallationofparts.TheCompany’sliquidityandcapitalrequirementsareprimarily afunctionofitsworkingcapitalneeds,capitalexpenditures,anddebtservicerequirements.TheCompanyhasthe following transactionsfor thecurrent year:
1.Acquisition of Property, Plant, and Equipment onAccount
OnDecember15th,theCompanyincurred$20millionofcapital expendituresrelatedtotheacquisitionofmanufacturingequipmentandmachinery.Thetermsoftheinvoiceare2%/15,net30.Theamounts wereunpaidasofyear-end (i.e.,includedintheaccountspayable balance).TheCompanyintendstopaytheinvoice inearlyJanuary, in accordance with the termsof the invoice.
2.Insurance Settlement Proceeds
CashIsKingInc.hasawarehouseandsalesofficeintheGulfCoastRegion.ThedamagecausedbyHurricaneWilliam(Hurricane), aCategory5hurricane,hasrenderedthewarehouse inoperableandhasalsoforcedthecompany torenttemporary officespaceinHoustontoaccommodateitssalesforce.TheCompany reachedasettlementwithitsinsurance carrierrelatedtothedamagefromthehurricaneandreceived proceedsof$15million fromits insurancecarrierinconnectionwithitsclaimforreimbursement.TheCompany planstousetheinsuranceproceedstofunditsdefined-benefitpensionplan,ratherthantorebuild the destroyedfacility.
3.SaleofAccountsReceivable
TheCompanysellsundivided interestsindesignatedpoolsofqualified accountsreceivabletoasecuritization vehicle.The Companyutilizes securitizationasa?financingtechnique?(e.g.,toreducemoreexpensivebankdebt–theinterestratesthecompany obtainsonnotesissuedbythequalifyingspecialpurposeentityarelowerthanthecompany couldgetonitsownbankdebt).TheCompanyservices,administersandcollectsthereceivablesonbehalfofthepurchaser. Theagreementincludescertaincovenantsandprovides forvariouseventsoftermination.Theagreement alsorequiresthatproceedsfromsecuritizationbeusedtopaydownCompanydebt.Duringthecurrentyear, $11millionofreceivables generatedfrom salesoftheCompany’sinventoryweresoldundertheagreement,and,therefore, are not reflectedin the accountsreceivable balance in the Company’s balance sheet.
Required:
Determinetheappropriatecashflowstatement treatment—classificationandtiming,ifapplicable,forthe above transactions.
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