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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended May 6, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission File Number 001-13927
 CSK Auto Corporation
 (Exact name of registrant as specified in its charter)
 Delaware
    
    86-0765798(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)645 E. Missouri Ave.
    
    85012Suite 400,
    
    (Zip Code)Phoenix, Arizona(Address of principal executive offices)
 (602) 265-9200  (Registrants telephone number, including area code)
 N/A  (Former name, former address and former fiscal year,
if changed since last report)
 o þ
  þ o o
 o þ




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TABLE OF CONTENTS
 PageExplanatory Note
    
    2Forward-Looking Statements
    
    3PART I  Financial InformationItem 1. Financial Statements (unaudited)Consolidated Balance Sheets
    
    4Consolidated Statements of Operations
    
    5Consolidated Statement of Stockholders Equity
    
    6Consolidated Statements of Cash Flows
    
    7Notes to Consolidated Financial Statements
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    29Item 4. Controls and Procedures
    
    29PART II  Other InformationItem 1. Legal Proceedings
    
    34Item 1A. Risk Factors
    
    34Item 6. Exhibits
    
    34Signatures
    
    35EX-31.01EX-31.02EX-32.01
   www.cskauto.com,
 
 Explanatory Note
   2




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Note Concerning Forward-Looking Information
    3




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PART I
 FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 CSK AUTO CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
   May 6,
    
    
    February 4,2007
    
    
    2007ASSETSCash and cash equivalents
    
    $
    23,260
    
    
    $
    20,169Receivables, net of allowances of $494 and $393, respectively
    
    
    47,762
    
    
    
    43,898Inventories
    
    
    528,346
    
    
    
    502,787Deferred income taxes
    
    
    51,208
    
    
    
    46,500Prepaid expenses and other current assets
    
    
    32,358
    
    
    
    31,585Total current assets
    
    
    682,934
    
    
    
    644,939Property and equipment, net
    
    
    172,411
    
    
    
    174,409Intangibles, net
    
    
    66,555
    
    
    
    67,507Goodwill
    
    
    224,937
    
    
    
    224,937Deferred income taxes
    
    
    1,079
    
    
    
    4,200Other assets, net
    
    
    34,972
    
    
    
    35,770Total assets
    
    $
    1,182,888
    
    
    $
    1,151,762LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    273,776
    
    
    $
    260,146Accrued payroll and related expenses
    
    
    62,890
    
    
    
    60,306Accrued expenses and other current liabilities
    
    
    84,194
    
    
    
    81,569Current maturities of long-term debt
    
    
    64,620
    
    
    
    56,098Current maturities of capital lease obligations
    
    
    7,935
    
    
    
    8,761Total current liabilities
    
    
    493,415
    
    
    
    466,880Long-term debt
    
    
    452,216
    
    
    
    451,367Obligations under capital leases
    
    
    13,906
    
    
    
    15,275Other liabilities
    
    
    49,176
    
    
    
    46,730Total non-current liabilities
    
    
    515,298
    
    
    
    513,372Commitments and contingenciesStockholders equity:Common stock, $0.01 par value, 90,000,000 shares authorized,
43,950,751 shares issued and outstanding at May 6, 2007 and
February 4, 2007
    
    
    440
    
    
    
    440Additional paid-in capital
    
    
    434,907
    
    
    
    433,912Accumulated deficit
    
    
    (261,172
    )
    
    
    (262,842
    )Total stockholders equity
    
    
    174,175
    
    
    
    171,510Total liabilities and stockholders equity
    
    $
    1,182,888
    
    
    $
    1,151,762
  4




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CSK AUTO CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
   Thirteen Weeks EndedMay 6,
    
    
    April 30,2007
    
    
    2006Net sales
    
    $
    473,035
    
    
    $
    463,768Cost of sales
    
    
    252,437
    
    
    
    248,573Gross profit
    
    
    220,598
    
    
    
    215,195Other costs and expenses:Operating and administrative
    
    
    199,234
    
    
    
    182,130Investigation and restatement costs
    
    
    4,564
    
    
    
    3,670Store closing costs
    
    
    706
    
    
    
    182Operating profit
    
    
    16,094
    
    
    
    29,213Interest expense
    
    
    13,322
    
    
    
    10,321Income before income taxes and cumulative effect of change in accounting principle
    
    
    2,772
    
    
    
    18,892Income tax expense
    
    
    1,102
    
    
    
    7,735Income before cumulative effect of change in accounting principle
    
    
    1,670
    
    
    
    11,157Cumulative effect of change in accounting principle, net of tax
    
    
    
    
    
    
    966Net income
    
    $
    1,670
    
    
    $
    10,191Basic earnings per share:Income before cumulative effect of change in accounting principle
    
    $
    0.04
    
    
    $
    0.25Cumulative effect of change in accounting principle
    
    
    
    
    
    
    0.02Net income per share
    
    $
    0.04
    
    
    $
    0.23Shares used in computing basic per share amounts
    
    
    43,951
    
    
    
    43,844Diluted earnings per share:Income before cumulative effect of change in accounting principle
    
    $
    0.04
    
    
    $
    0.25Cumulative effect of change in accounting principle
    
    
    
    
    
    
    0.02Net income per share
    
    $
    0.04
    
    
    $
    0.23Shares used in computing diluted per share amounts
    
    
    44,697
    
    
    
    44,218
  5




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CSK AUTO CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
   Common Stock
    
    Additional
    
    Accumulated
    
    TotalShares
    
    Amount
    
    Paid-in Capital
    
    Deficit
    
    EquityBalances at February 4, 2007
    
    
    43,950,751
    
    
    $
    440
    
    
    $
    433,912
    
    
    $
    (262,842
    )
    
    $
    171,510Compensation expense, stock-based awards
    
    
    
    
    
    
    
    
    
    
    995
    
    
    
    
    
    
    
    995Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,670
    
    
    
    1,670Balances at May 6, 2007
    
    
    43,950,751
    
    
    $
    440
    
    
    $
    434,907
    
    
    $
    (261,172
    )
    
    $
    174,175
  6




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CSK AUTO CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Thirteen Weeks EndedMay 6,
    
    
    April 30,2007
    
    
    2006Cash flows provided by (used in) operating activities:Net income
    
    $
    1,670
    
    
    $
    10,191Adjustments:Depreciation and amortization on property and equipment
    
    
    9,947
    
    
    
    10,130Amortization of other items
    
    
    1,336
    
    
    
    2,300Amortization of debt discount and deferred financing costs
    
    
    1,319
    
    
    
    768Stock-based compensation expense
    
    
    1,367
    
    
    
    1,676Write downs on disposal of property, equipment and other assets
    
    
    1,398
    
    
    
    492Deferred income taxes
    
    
    1,046
    
    
    
    6,954Changes in operating assets and liabilities:Receivables
    
    
    (2,344
    )
    
    
    (2,934
    )Inventories
    
    
    (25,559
    )
    
    
    (411
    )Prepaid expenses and other current assets
    
    
    (773
    )
    
    
    (1,006
    )Accounts payable
    
    
    13,630
    
    
    
    18,590Accrued payroll, accrued expenses, and other current liabilities
    
    
    4,838
    
    
    
    (3,236
    )Other operating activities
    
    
    (192
    )
    
    
    (405
    )Net cash provided by operating activities
    
    
    7,683
    
    
    
    43,109Cash flows used in investing activities:Capital expenditures
    
    
    (8,858
    )
    
    
    (7,336
    )Business acquisition
    
    
    
    
    
    
    (1,623
    )Other investing activities
    
    
    (477
    )
    
    
    (459
    )Net cash used in investing activities
    
    
    (9,335
    )
    
    
    (9,418
    )Cash flows provided by (used in) financing activities:Borrowings under senior credit facility  line of credit
    
    
    65,600
    
    
    
    32,900Payments under senior credit facility  line of credit
    
    
    (57,100
    )
    
    
    (24,900
    )Payments under senior credit facility  term loan
    
    
    (873
    )
    
    
    Payment of debt issuance costs
    
    
    
    
    
    
    (385
    )Payments on capital lease obligations
    
    
    (2,684
    )
    
    
    (2,645
    )Payments on seller financing arrangements
    
    
    (156
    )
    
    
    (115
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    256Other financing activities
    
    
    (44
    )
    
    
    (72
    )Net cash provided by financing activities
    
    
    4,743
    
    
    
    5,039Net increase in cash
    
    
    3,091
    
    
    
    38,730Cash and cash equivalents, beginning of period
    
    
    20,169
    
    
    
    17,964Cash and cash equivalents, end of period
    
    $
    23,260
    
    
    $
    56,694
  7




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CSK AUTO CORPORATION AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
   Note 1  Basis of Presentation
  Use of Estimates
   Note 2  Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes.
 Accounting for Certain Hybrid Financial
Instruments  an amendment of FASB Statements No. 133 and 140 Accounting for
Derivative Instruments and Hedging Activities Application of
Statement 133 to Beneficial Interests in Securitized Financial Assets Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities  a Replacement
of FASB Statement No. 125
 Accounting for Servicing of Financial Assets 
an amendment of FASB Statement No. 140 Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities
 8




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 How Taxes Collected from Customers and Remitted to Governmental Authorities
Should be Presented in the Income Statement (That Is, Gross versus Net Presentation)
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Note 3  Inventories
  
    
    We reduce the FIFO carrying value of our inventory for estimated loss due to shrinkage
since the most recent physical inventory. Our store shrinkage estimates are determined by
dividing the shrinkage loss based on the most recent physical inventory by the sales for that
store since its previous physical inventory. That percentage is multiplied by sales since the
last physical inventory through period end. Our shrinkage expense for the thirteen weeks
ended May 6, 2007 and April 30, 2006 was approximately $7.5 million and $8.1 million,
respectively. While the shrinkage accrual is based on recent experience, there is a risk that
actual losses may be higher or lower than expected.
    
    In certain instances, we retain the right to return obsolete and excess merchandise
inventory to our vendors. In situations where we do not have a right to return, we record an
allowance representing an estimated loss for the difference between the cost of any obsolete
or excess inventory and the estimated retail selling price. Inventory levels and margins
earned on all products are monitored monthly. Quarterly, we make an assessment if we expect
to sell any significant amount of inventory below cost and, if so, estimate the amount of
allowance to record.
  May 6,
    
    
    February 4,2007
    
    
    2007FIFO Cost
    
    $
    588,959
    
    
    $
    562,405Administrative and overhead costs
    
    
    28,377
    
    
    
    28,725Vendor allowances
    
    
    (67,980
    )
    
    
    (69,469
    )Shrinkage
    
    
    (20,240
    )
    
    
    (18,116
    )Obsolescence
    
    
    (770
    )
    
    
    (758
    )Net inventory
    
    $
    528,346
    
    
    $
    502,787
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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 4  Property and Equipment
  May 6,
    
    
    February 4,2007
    
    
    2007
    
    
    Estimated Useful lifeLand
    
    $
    348
    
    
    $
    348Buildings
    
    
    16,021
    
    
    
    15,251
    
    
    15 - 25 yearsLeasehold improvements
    
    
    160,716
    
    
    
    159,070
    
    
    Shorter of lease term or useful lifeFurniture, fixtures and equipment
    
    
    170,354
    
    
    
    168,845
    
    
    3 - 10 yearsProperty under capital leases
    
    
    98,722
    
    
    
    97,974
    
    
    5 - 15 years or life of leasePurchased software
    
    
    11,476
    
    
    
    10,829
    
    
    5 years457,637
    
    
    
    452,317Less: accumulated depreciation and
amortization
    
    
    (285,226
    )
    
    
    (277,908
    )Property and equipment, net
    
    $
    172,411
    
    
    $
    174,409
   Note 5  Store Closing Costs
  Accounting for
Costs Associated with Exit or Disposal Activities.
   10




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Thirteen Weeks EndedMay 6,
    
    
    April 30,2007
    
    
    2006Balance, beginning of year
    
    $
    4,911
    
    
    $
    7,033Store closing costs:Provision for store closing costs
    
    
    831
    
    
    
    Other revisions in estimates
    
    
    (386
    )
    
    
    (149
    )Accretion
    
    
    58
    
    
    
    76Operating expenses and other
    
    
    203
    
    
    
    255Total store closing costs
    
    
    706
    
    
    
    182Payments:Rent expense, net of sublease recoveries
    
    
    (507
    )
    
    
    (651
    )Occupancy and other expenses
    
    
    (276
    )
    
    
    (152
    )Sublease commissions and buyouts
    
    
    (43
    )
    
    
    (52
    )Total payments
    
    
    (826
    )
    
    
    (855
    )Ending balance
    
    $
    4,791
    
    
    $
    6,360
  Note 6  Long-Term Debt
 Overview
  May 6,
    
    
    February 4,2007
    
    
    2007Term loan facility
    
    $
    348,252
    
    
    $
    349,125Senior credit facility
    
    
    60,500
    
    
    
    52,00063/4% senior exchangeable notes, carrying balance decreased by discount of
$6.6 million and $6.9 million, respectively, in accordance with EITF No. 06-6
    
    
    93,441
    
    
    
    93,061Seller financing arrangements
    
    
    14,643
    
    
    
    13,279Total debt
    
    
    516,836
    
    
    
    507,465Less: Current portion of term loan facility
    
    
    3,469
    
    
    
    3,478Senior credit facility (1)
    
    
    60,500
    
    
    
    52,000Current maturities of seller financing arrangements
    
    
    651
    
    
    
    620Total debt (non-current)
    
    $
    452,216
    
    
    $
    451,367
 
 (1)
    
    This portion of the revolving line of credit represents the expected paydown in the following 12-month period. Term Loan Facility
  11




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Senior Credit Facility  Revolving Line of Credit
     63/4% Notes
 3 4 3 4 3 4 3 4 3 4
 12




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Terms
    
    
    63/4% NotesInterest Rate
    
    
    6.75% per year until December 15, 2010; 6.50% thereafterExchange Rate
    
    
    60.6061 shares per $1,000 principal (equivalent to an initial exchange price of approximately $16.50 per share)Maximum CSK shares exchangeable
    
    
    6,060,610 common shares, subject to adjustment in certain circumstancesMaturity date
    
    
    December 15, 2025Guaranteed by
    
    
    CSK Auto Corporation and all of Autos present and future domestic subsidiaries, jointly and severally, on a senior basisDates that the noteholders may
require Auto to repurchase some
or all for cash at a repurchase
price equal to 100% of the
principal amount of the notes
being repurchased, plus any
accrued and unpaid interest
    
    
    December 15, 2010, December 15, 2015, and December 15, 2020 or following a fundamental change as described in the indentureIssuance costs being amortized
over a 5-year period, corresponding
to the first date the
noteholders could require repayment
    
    
    $3.7 millionAuto will not be able to redeem notes
    
    
    Prior to December 15, 2010Auto may redeem for cash some or
all of the notes
    
    
    On or after December 15, 2010, upon at least 35 calendar days noticeRedemption price
    
    
    Equal to 100% of the principal amount plus any accrued and unpaid interest and additional interest, if any, to, but not including, the redemption date
 3 4
 
    
    During any fiscal quarter (and only during that fiscal quarter) commencing after
January 29, 2006, if the last reported sale price of our common stock is greater than or
equal to 130% of the exchange price for at least 20 trading days in the period of 30
consecutive trading days ending on the last trading day of the preceding fiscal quarter;
    
    If the 63/4% Notes have been called for redemption by Auto; or
    
    Upon the occurrence of specified corporate transactions, such as a change in control,
as described in the indenture under which the 63/4% Notes were issued.
 3 4
 Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Companys Own Stock 3 4 3 4 3 4 3 4
 3 4 3 4 3 4 3 4 3 4
 3 4
 13




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Seller Financing Arrangements
 The
Effect of Lessee Involvement in Asset Construction.
 Debt Covenants
      Note 7  Accounting for Share-Based Compensation
 Share-Based Payment Accounting
for Stock Issued to Employees
 14




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  2004 Stock and Incentive Plan
   Stock Options
  Options ExercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    Aggregate
    
    
    
    
    
    
    Average
    
    
    AggregateNumber of
    
    
    Grant
    
    
    Fair
    
    
    Intrinsic
    
    
    Options
    
    
    Exercisable
    
    
    IntrinsicShares
    
    
    Price
    
    
    Value
    
    
    Value
    
    
    Exercisable
    
    
    Price
    
    
    ValueBalance at February 4, 2007
    
    
    3,280,521
    
    
    $
    14.13Granted at market price
    
    
    
    
    
    $
    
    
    
    $
    Exercised
    
    
    
    
    
    $
    Cancelled
    
    
    (47,024
    )
    
    $
    13.67Balance at May 6, 2007
    
    
    3,233,497
    
    
    $
    14.14
    
    
    
    
    
    
    $
    9,874,000
    
    
    
    2,328,818
    
    
    $
    13.56
    
    
    $
    8,500,000
 Restricted Stock
  15




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 WeightedAverage
    
    
    AggregateNumber of
    
    
    Grant
    
    
    IntrinsicShares
    
    
    Price
    
    
    ValueNon-vested at February 4, 2007
    
    
    128,309
    
    
    $
    15.86Granted
    
    
    
    
    
    $
    Released
    
    
    
    
    
    $
    Cancelled
    
    
    (4,611
    )
    
    $
    15.22Non-vested at May 6, 2007
    
    
    123,698
    
    
    $
    15.88
    
    
    $
    1,975,000
 Long-Term Incentive Plan
  Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans
  Note 8  Income Taxes
 Accounting for Uncertainty in Income
Taxes  an Interpretation of FASB Statement No. 109 Accounting for Income Taxes
 16




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
      Note 9  Earnings per Share
  Thirteen Weeks EndedMay 6,
    
    
    April 30,2007
    
    
    2006Numerator for basic and diluted earnings per share:Net income
    
    $
    1,670
    
    
    $
    10,191Denominator for basic earnings per share:Weighted average shares outstanding (basic)
    
    
    43,951
    
    
    
    43,844Denominator for diluted earnings per share:Weighted average shares outstanding (basic)
    
    
    43,951
    
    
    
    43,844Effect of dilutive securities
    
    
    746
    
    
    
    374Weighted average shares outstanding (diluted)
    
    
    44,697
    
    
    
    44,218Shares excluded as a result of anti-dilution:Stock options
    
    
    769
    
    
    
    1,212
 3 4
 Note 10  Legal Matters
 Audit Committee Investigation and Restatement of the Consolidated Financial Statements
  17




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
      Securities Class Action Litigation
 Communications Workers of America Plan for Employees Pensions and Death Benefits v. CSK
Auto Corporation, et al. (Communications Workers) Wilfred Fortier
v. CSK Auto Corporation, et al. Communications Workers
 18




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Shareholder Derivative Litigation
  SEC Investigation
  Other Litigation
  Note 11  Subsequent Events
 3 4
 3 4 3 4
 19




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 3 4 3 4
   20




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis of financial condition and results of operations should
be read in conjunction with our consolidated historical financial statements and the notes to those
statements that appear elsewhere in this report. Our discussion contains forward-looking statements
based upon current expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions. Actual results and the timing of events could differ
materially from those anticipated in these forward-looking statements as a result of a number of
factors, including those set forth or referenced under Note Concerning Forward Looking
Information above.
  General
  
    
    Checker Auto Parts, founded in 1969, with 471 stores in the Southwestern, Rocky Mountain
and Northern Plains states and Hawaii;
    
    Schucks Auto Supply, founded in 1917, with 228 stores in the Pacific Northwest and Alaska;
    
    Kragen Auto Parts, founded in 1947, with 506 stores primarily in California; and
    
    Murrays Discount Auto Stores, founded in 1972, with 129 stores in the Midwest.
   Recent Developments
 Appointment
of New President and Chief Executive Officer; Appointment of New Board Chairman 
 Senior Credit Facility Waiver 
 21




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##### Table of Contents



Strategic Review of Business: Store Closures 
   Chief
Financial Officer 
 Combined 2006/2007 Annual Meeting 
 Results of Operations
   22




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Thirteen Weeks EndedMay 6,
    
    April 30,2007
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    53.4
    %
    
    
    53.6
    %Gross profit
    
    
    46.6
    %
    
    
    46.4
    %Other costs and expenses:Operating and administrative
    
    
    42.1
    %
    
    
    39.3
    %Investigation and restatement costs
    
    
    1.0
    %
    
    
    0.8
    %Store closing costs
    
    
    0.1
    %
    
    
    0.0
    %Operating profit
    
    
    3.4
    %
    
    
    6.3
    %Interest expense
    
    
    2.8
    %
    
    
    2.2
    %Income before income taxes and cumulative effect of
change in accounting principle
    
    
    0.6
    %
    
    
    4.1
    %Income tax expense
    
    
    0.2
    %
    
    
    1.7
    %Income before cumulative effect of change in accounting principle
    
    
    0.4
    %
    
    
    2.4
    %Cumulative effect of change in accounting principle, net of tax
    
    
    0.0
    %
    
    
    0.2
    %Net income
    
    
    0.4
    %
    
    
    2.2
    %
 Thirteen Weeks Ended May 6, 2007 Compared to Thirteen Weeks Ended April 30, 2006
      23




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Share-Based Payment
 Liquidity and Capital Resources
 Overview of Liquidity
  3 4 3 4
  Analysis of Cash Flows
  24




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Accounting for Uncertainty in Income
Taxes
 Store Closures
  Accounting for
Costs Associated with Exit or Disposal Activities.
   25




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##### Table of Contents



Thirteen Weeks EndedMay 6,
    
    
    April 30,2007
    
    
    2006Balance, beginning of year
    
    $
    4,911
    
    
    $
    7,033Store closing costs:Provision for store closing costs
    
    
    831
    
    
    
    Other revisions in estimates
    
    
    (386
    )
    
    
    (149
    )Accretion
    
    
    58
    
    
    
    76Operating expenses and other
    
    
    203
    
    
    
    255Total store closing costs
    
    
    706
    
    
    
    182Payments:Rent expense, net of sublease recoveries
    
    
    (507
    )
    
    
    (651
    )Occupancy and other expenses
    
    
    (276
    )
    
    
    (152
    )Sublease commissions and buyouts
    
    
    (43
    )
    
    
    (52
    )Total payments
    
    
    (826
    )
    
    
    (855
    )Ending balance
    
    $
    4,791
    
    
    $
    6,360
  Factors Affecting Liquidity and Capital Resources
 Sales Trends
   Inflation
  26




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Debt Covenants
      3 4
 3 4 3 4 3 4 3 4
 27




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Interest Rates
   Critical Accounting Matters
  Recent Accounting Pronouncements
 Accounting for Income Taxes.
 Accounting for Certain Hybrid Financial
Instruments  an amendment of FASB Statements No. 133 and 140 Accounting for Derivative
Instruments and Hedging Activities Application of Statement 133
to Beneficial Interests in Securitized Financial Assets Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities  a Replacement of FASB Statement
No. 125
 Accounting for Servicing of Financial Assets  an
amendment of FASB Statement No. 140 Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities
 How Taxes Collected from Customers and Remitted to Governmental Authorities
Should be Presented in the Income Statement (That Is, Gross versus Net Presentation)
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
    MATERIAL WEAKNESS IN INTERNAL CONTROL OVER FINANCIAL REPORTING
   1)
    
    Control Environment:The Company did not maintain an effective control
environment based on the criteria established in the COSO framework. The Company failed
to design controls to prevent or detect instances of inappropriate override of, or
interference with, existing policies, procedures and internal controls. The Company did
not establish and maintain a proper tone as to internal control over financial
reporting. More specifically, senior management failed to emphasize, through consistent
communication and behavior, the importance of internal control over financial reporting
and adherence to the Companys code of business conduct and ethics, which, among other
things, resulted in information being withheld from, and improper explanations and
inadequate supporting documentation being provided to, the Companys Audit Committee,
its Board of Directors, its internal auditors and independent registered public
accountants. In addition, certain members of senior management created an environment
that discouraged employees from raising accounting related concerns and suppressed
accounting related inquiries that were made.
  a)
    
    Accounting for Inventory The Companys lack of effective controls did not
prevent or detect the inappropriate override of established procedures regarding the
adjustment of inventories for the results of annual physical inventory counts at
each of the Companys distribution centers, warehouses and stores. In addition, the
Companys lack of effective controls did not prevent or detect inappropriate and
inaccurate accumulations of inventory balances in in-transit accounts (i.e., store
returns to warehouses, distribution centers and return centers; and to vendors),
which was known or should have been known to several members of the Finance
organization. The lack of effective controls permitted (i) errors in inventory
balances to be inappropriately systematically amortized to cost of sales in
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improper periods; (ii) instances where improper adjustments were made to certain
product costs within the perpetual inventory system that, together with improper
journal entries to the general ledger, resulted in the overstatement of inventory and
cost of sales being recognized in incorrect periods; and (iii) the inappropriate
capitalization of inventory overheads (purchasing, warehousing and distribution costs)
and vendor allowance receivables. Additionally, Company personnel did not properly
oversee the processes for accounting for inventory warranties and did not establish
adequate accrued liabilities for warranty returns from customers.b)
    
    Accounting for Vendor Allowances The Companys lack of effective controls
did not detect or prevent the inappropriate override of established procedures
related to: (i) the review and approval process for initial vendor allowance
agreements; (ii) the monitoring of modifications to existing vendor allowance
agreements; and (iii) the accuracy of recording of various vendor allowance
transactions, including applicable cash collections and estimates. Furthermore, as a
result of the lack of a sufficient complement of personnel with the requisite level
of accounting knowledge, experience and training in GAAP, as discussed in 2) below,
the Company did not identify that provisions in certain agreements were required to
be accounted for differently. The investigation revealed that improper debits were
issued and applied to accounts payable for amounts the Company was not entitled to
receive. These amounts were subsequently repaid to those vendors through direct cash
payments, the foregoing of future cash discounts, the acceptance of increased prices
on future purchases and paybacks through the warranty account. This material
weakness resulted in errors in vendor allowance receivables, inventory, accounts
payable and costs of sales accounts.c)
    
    Accounting for Certain Accrued Expenses The Companys lack of effective
controls did not prevent or detect the inappropriate override of established
procedures to adjust workers compensation liabilities to amounts determined by
independent actuaries. Errors in timing of incentive compensation accruals resulted
from inadvertent misapplication of GAAP as well as the lack of effective controls
which permitted override of established procedures. In addition, the Company
identified improper and unsupported journal entries to the general ledger that
resulted in the misstatement of certain accrued expense accounts and related
operating and administrative expenses. This material weakness resulted in errors in
certain accrued expenses and related operating and administrative expenses,
including workers compensation liabilities and incentive compensation costs.d)
    
    Accounting for Store Fixtures and Supplies The Companys lack of effective
controls did not prevent or detect the override of established procedures for
periodic physical inspections and usability evaluations of store fixtures held for
future use in a warehouse. Specifically, the Company did not detect that certain of
these assets were impaired or did not exist and that, as a result, their recorded
cost was overstated. In addition, the Companys controls failed to detect an
inappropriate accumulation of costs related to store fixtures and supplies in
general ledger accounts and the Companys overstatement of supplies on hand in each
store. This material weakness resulted in errors in its store fixtures (fixed
assets) and supplies accounts (other current assets) and related operating and
administrative expenses.
 2)
    
    Resources, and Policies and Procedures to Ensure Proper and Consistent
Application of GAAP:The Company did not maintain effective controls over the
application of GAAP. Specifically the Company failed to have a sufficient complement of
personnel with a level of accounting knowledge, experience and training in the
application of GAAP commensurate with the Companys financial reporting requirements.
This material weakness in the Companys resources and policies contributed to the
following additional material weaknesses:
 a)
    
    Accounting for Leases The Company did not maintain effective controls over
the completeness and accuracy of its accounting for lease related fixed assets and
debt, related operating and administrative expenses and interest expense, and
financial statement disclosures. Specifically, the Company did not detect that a
vehicle master leasing arrangement was not properly evaluated under GAAP.b)
    
    Allowance for Sales Returns The Company did not maintain effective
controls over the completeness of its allowance for sales returns and the related
net sales, cost of sales, accrued liabilities and other current assets accounts.
Specifically, the Company did not detect that it had inappropriately excluded an
estimate for certain returns that were incorrectly classified as warranty and core
returns in the Companys methodology for determining an allowance for sales returns.c)
    
    Accounting for Certain Accrued Expenses The Company did not maintain
effective controls over the completeness, valuation and reporting in the proper
period of certain of its accrued expense accounts and related operating and
administrative expenses. The Company identified numerous instances of errors in
accrual accounts,
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including transactions not accounted for in accordance with GAAP, that were attributable
to the Companys lack of a sufficient complement of experienced personnel and
written accounting policies and procedures in certain areas.
  PLAN FOR REMEDIATION OF MATERIAL WEAKNESSES
 Remediation Initiatives
   1)
    
    Control Environment:The Companys failure to maintain an adequate control
environment and have appropriate staffing resources contributed significantly to each of
the material weaknesses described above and the Companys inability to prevent or detect
material errors in its consolidated financial statements and disclosures. The Company
has completed or is in the process of completing the following remediation measures:
 General
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##### Table of Contents



Accounting for Inventory
 Accounting for Vendor Allowances
 
    
    The Company has enhanced its review and approval processes to ensure review by
appropriate members of management of critical information necessary to assess vendor
allowance collections and the proper recognition of vendor allowances in the
appropriate periods.
    
    The Company plans to reevaluate and enhance its contract review process, including
training of merchandising, finance and legal staffs, as well as formalizing the
communication process among the three groups, to better provide for timely
identification of potential issues and accurate accounting treatment. The Company also
plans to implement enhanced processes and procedures so that its merchandising, finance
and legal staffs have adequate information to conduct their review and provide
meaningful input and communication during the contract negotiation process to allow for
accurate accounting treatment for both standard and non-standard contracts.
    
    The Company plans to conduct training for its merchandising, finance and legal
staffs relative to vendor arrangements, including contract provisions and construction,
the impact of amendments and side and ancillary agreements and accounting treatment of
related vendor allowances.
    
    The Company has consolidated the oversight and accounting for all vendor allowance
financial transactions under one senior accounting manager to provide for consistent
application with respect to the accounting for vendor allowances.
 Accounting for Certain Accrued Expenses
 Accounting for Store Fixtures and Supplies
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##### Table of Contents



2)
    
    Resources and Policies and Procedures to Ensure Proper and Consistent
Application of GAAP:Lack of formalized written procedures contributed to the errors
and irregularities in the accounting records, as did the Companys failure to have a
sufficient complement of personnel with a level of accounting knowledge, experience and
training in the application of GAAP commensurate with the Companys financial reporting
requirements. The Company has completed or is in the process of completing the following
remediation measures:
 General
   Accounting for Leases
 Allowance for Sales Returns
 Interim Measures Pending Completion of Remediation Initiatives
  
    
    The quarterly reporting process was extended, allowing the Company to conduct
additional analyses and procedures and make additional adjustments as necessary to
ensure the accuracy of financial reporting contained in this Quarterly Report.
    
    Where the Company identified the existence of a material weakness, the Company has
performed extensive substantive procedures to ensure that affected amounts are fairly
stated for all periods presented in this Quarterly Report.
    
    The Company retained, on an interim basis, numerous experienced accounting
consultants, other than the Companys independent registered public accounting firm,
with relevant accounting experience, skills and knowledge, working under the
supervision and direction of the Companys management, to assist with the fiscal 2007
quarterly reporting process.
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##### Table of Contents




    
    The Company conducted a detailed and extensive review of account reconciliations,
non-routine transactions and agreements, financial statement classifications,
spreadsheets, and journal entries and related substantiation for accuracy and conformance
with GAAP.
 Control deficiencies not constituting material weaknesses
  Managements conclusions
   CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
  
 PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits
  34




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SIGNATURES
  CSK Auto CorporationDATED:
September 14, 2007By:
    
    /s/ Lawrence N. Mondry

Lawrence N. MondryPresident and Chief Executive OfficerBy:
    
    /s/ Steven L. Korby

Steven L. KorbyInterim Chief Financial Officer
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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.01
    
    Form of Amendment to Employment Agreement, by and between CSK
Auto, Inc. and Maynard Jenkins, incorporated herein by reference
to Exhibit 10.1 of our Current Report on Form 8-K, filed on April
18, 2007 (File No. 001-13927).10.02
    
    Form of Letter Agreement between CSK Auto Corporation and Maynard
Jenkins amending March 17, 1998 Stock Option Grant, incorporated
herein by reference to Exhibit 10.2 of our Current Report on Form
8-K, filed on April 18, 2007 (File No. 001-13927).10.03
    
    Form of Letter Agreement between CSK Auto Corporation and Maynard
Jenkins amending March 18, 1999 Stock Option Grant, incorporated
herein by reference to Exhibit 10.3 of our Current Report on Form
8-K, filed on April 18, 2007 (File No. 001-13927).10.04
    
    Form of Letter Agreement between CSK Auto Corporation and Maynard
Jenkins amending December 21, 1999 Stock Option Grant,
incorporated herein by reference to Exhibit 10.4 of our Current
Report on Form 8-K, filed on April 18, 2007 (File No. 001-13927).10.05
    
    Form of Letter Agreement between CSK Auto Corporation and Maynard
Jenkins amending April 5, 2002 Stock Option Grant, incorporated
herein by reference to Exhibit 10.5 of our Current Report on Form
8-K, filed on April 18, 2007 (File No. 001-13927).10.06
    
    Form of Second Amended and Restated Severance and Retention
Agreement between CSK Auto, Inc. and each of its then senior
executive officers (other than Maynard Jenkins), incorporated by
reference to Exhibit 10.1 of our Current Report on Form 8-K filed
on February 27, 2007 (File No. 001-13927).10.07
    
    Second Amendment, dated as of April 27, 2007, among CSK Auto,
Inc., the Lenders party thereto, JPMorgan Chase Bank, N.A., as
Administrative Agent, and Lehman Commercial Paper Inc. and
Wachovia Bank, National Association, as Co-Syndication Agents,
incorporated by reference to Exhibit 10.50.2 of our Annual Report
on Form 10-K, filed on May 1, 2007 (File No. 001-13927).31.01*
    
    Certification by the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.02*
    
    Certification by the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.01*
    
    Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.
    
    Employment compensation plans or arrangements. 36