California Pizza Kitchen
California Pizza Kitchen
Chris Schroeder
FI 602: Financial Strategy and Valuation Fang Chen September 21, 2012
Introduction
In July of 2007, California Pizza Kitchen (CPK), a casual dining pizzeria started in California by co-owners Rick Rosenfield and Larry Flax, was faced with the decision to invest in a stock repurchase program. Led by Chief Financial Officer Susan Collyns, the financial team of CPK was reviewing the preliminary results for the second quarter to determine if the stock repurchase program would provide a significant financial leverage for the company. The goal was to determine if the company can maintain the necessary financial stability to meet the expected growth trajectory for 2008 while utilizing debt financing for the buyback program. Having started the company using the original funding from the initial public offering in 2000, the co-owners were able to have zero debt financing on the balance sheets while maintaining a substantial borrowing capacity of $75 million with an interest rate of 6.16%. With the recent 10% stock decline, the timing to roll out a stock buyback program would be questionable, however it would reduce the corporate income-tax liability, which was previously $10 million in 2006, and would allow for a debt tax shield. Utilizing the CPK financial statements from 2003-2007, recommendations will be provided to determine the best recapitalization approach for the buyback program.
SWOT Analysis
Before indulging in the financials of CPK, a SWOT analysis will give an understanding of the internal and external factors that are influencing the current business and industry. Based upon information provided in the case, it appears that CPK has an abundance of strengths, with minimal weaknesses, that are currently affecting the company. There are several opportunities that the company could utilize to potentially increase revenues and help maintain a competitive advantage in the market. With the current threats of the
Chris Schroeder
FI 602: Financial Strategy and Valuation Fang Chen September 21, 2012
Introduction
In July of 2007, California Pizza Kitchen (CPK), a casual dining pizzeria started in California by co-owners Rick Rosenfield and Larry Flax, was faced with the decision to invest in a stock repurchase program. Led by Chief Financial Officer Susan Collyns, the financial team of CPK was reviewing the preliminary results for the second quarter to determine if the stock repurchase program would provide a significant financial leverage for the company. The goal was to determine if the company can maintain the necessary financial stability to meet the expected growth trajectory for 2008 while utilizing debt financing for the buyback program. Having started the company using the original funding from the initial public offering in 2000, the co-owners were able to have zero debt financing on the balance sheets while maintaining a substantial borrowing capacity of $75 million with an interest rate of 6.16%. With the recent 10% stock decline, the timing to roll out a stock buyback program would be questionable, however it would reduce the corporate income-tax liability, which was previously $10 million in 2006, and would allow for a debt tax shield. Utilizing the CPK financial statements from 2003-2007, recommendations will be provided to determine the best recapitalization approach for the buyback program.
SWOT Analysis
Before indulging in the financials of CPK, a SWOT analysis will give an understanding of the internal and external factors that are influencing the current business and industry. Based upon information provided in the case, it appears that CPK has an abundance of strengths, with minimal weaknesses, that are currently affecting the company. There are several opportunities that the company could utilize to potentially increase revenues and help maintain a competitive advantage in the market. With the current threats of the