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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended November 4, 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(State or other jurisdiction of 
incorporation or organization)
    
    86-0765798(I.R.S. Employer
Identification No.)645 E. Missouri Ave. 
Suite 400, 
Phoenix, Arizona(Address of principal executive offices)
    
    85012(Zip Code)
 (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)
 þ o
  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)
    
    4Consolidated 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
    
    22Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    32Item 4.
    
    Controls and Procedures
    
    32PART II  Other InformationItem 1.
    
    Legal Proceedings
    
    38Item 1A.
    
    Risk Factors
    
    38Item 6.
    
    Exhibits
    
    38Signatures
    
    
    
    39EX-10.03EX-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
 November 4,
    
    
    February 4,2007
    
    
    2007ASSETSCash and cash equivalents
    
    $
    19,199
    
    
    $
    20,169Receivables, net of allowances of $362 and $393, respectively
    
    
    35,453
    
    
    
    43,898Inventories
    
    
    529,427
    
    
    
    502,787Deferred income taxes
    
    
    49,806
    
    
    
    46,500Prepaid expenses and other current assets
    
    
    36,490
    
    
    
    31,585Total current assets
    
    
    670,375
    
    
    
    644,939Property and equipment, net
    
    
    165,816
    
    
    
    174,409Intangibles, net
    
    
    64,192
    
    
    
    67,507Goodwill
    
    
    224,937
    
    
    
    224,937Deferred income taxes
    
    
    2,015
    
    
    
    4,200Other assets, net
    
    
    33,766
    
    
    
    35,770Total assets
    
    $
    1,161,101
    
    
    $
    1,151,762LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    286,145
    
    
    $
    260,146Accrued payroll and related expenses
    
    
    58,420
    
    
    
    60,306Accrued expenses and other current liabilities
    
    
    100,635
    
    
    
    81,569Current maturities of long-term debt
    
    
    24,062
    
    
    
    56,098Current maturities of capital lease obligations
    
    
    6,765
    
    
    
    8,761Total current liabilities
    
    
    476,027
    
    
    
    466,880Long-term debt
    
    
    450,982
    
    
    
    451,367Obligations under capital leases
    
    
    11,153
    
    
    
    15,275Other liabilities
    
    
    47,211
    
    
    
    46,730Total non-current liabilities
    
    
    509,346
    
    
    
    513,372Commitments and contingenciesStockholders equity:Common stock, $0.01 par value, 90,000,000 shares authorized,
43,970,910 and 43,950,751 shares issued and outstanding at
November 4, 2007 and February 4, 2007, respectively
    
    
    440
    
    
    
    440Additional paid-in capital
    
    
    436,984
    
    
    
    433,912Accumulated deficit
    
    
    (261,696
    )
    
    
    (262,842
    )Total stockholders equity
    
    
    175,728
    
    
    
    171,510Total liabilities and stockholders equity
    
    $
    1,161,101
    
    
    $
    1,151,762
  4




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CSK AUTO CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Thirteen Weeks Ended
    
    
    Thirty-Nine Weeks EndedNovember 4,
    
    
    October 29,
    
    
    November 4,
    
    
    October 29,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    471,386
    
    
    $
    483,075
    
    
    $
    1,424,648
    
    
    $
    1,435,585Cost of sales
    
    
    256,823
    
    
    
    256,188
    
    
    
    759,107
    
    
    
    760,950Gross profit
    
    
    214,563
    
    
    
    226,887
    
    
    
    665,541
    
    
    
    674,635Other costs and expenses:Operating and administrative
    
    
    207,424
    
    
    
    201,056
    
    
    
    610,905
    
    
    
    582,815Investigation and restatement costs
    
    
    2,288
    
    
    
    6,736
    
    
    
    10,623
    
    
    
    22,368Store closing costs
    
    
    584
    
    
    
    364
    
    
    
    1,753
    
    
    
    1,045Operating profit
    
    
    4,267
    
    
    
    18,731
    
    
    
    42,260
    
    
    
    68,407Interest expense
    
    
    13,186
    
    
    
    13,308
    
    
    
    39,672
    
    
    
    34,628Loss on debt retirement
    
    
    
    
    
    
    90
    
    
    
    
    
    
    
    19,426Income (loss) before income taxes and cumulative effect of
change in accounting principle
    
    
    (8,919
    )
    
    
    5,333
    
    
    
    2,588
    
    
    
    14,353Income tax expense (benefit)
    
    
    (3,096
    )
    
    
    2,175
    
    
    
    1,442
    
    
    
    5,855Income (loss) before cumulative effect of change in
accounting principle
    
    
    (5,823
    )
    
    
    3,158
    
    
    
    1,146
    
    
    
    8,498Cumulative effect of change in accounting principle, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    966Net income (loss)
    
    $
    (5,823
    )
    
    $
    3,158
    
    
    $
    1,146
    
    
    $
    7,532Basic earnings per share:Income (loss) before cumulative effect of change in
accounting principle
    
    $
    (0.13
    )
    
    $
    0.07
    
    
    $
    0.03
    
    
    $
    0.19Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.02Net income (loss) per share
    
    $
    (0.13
    )
    
    $
    0.07
    
    
    $
    0.03
    
    
    $
    0.17Shares used in computing basic per share amounts
    
    
    43,962
    
    
    
    43,867
    
    
    
    43,956
    
    
    
    43,855Diluted earnings per share:Income (loss) before cumulative effect of change in
accounting principle
    
    $
    (0.13
    )
    
    $
    0.07
    
    
    $
    0.03
    
    
    $
    0.19Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.02Net income (loss) per share
    
    $
    (0.13
    )
    
    $
    0.07
    
    
    $
    0.03
    
    
    $
    0.17Shares used in computing diluted per share amounts
    
    
    43,962
    
    
    
    44,050
    
    
    
    44,428
    
    
    
    44,065
  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
    )
    
    $
    171,510Restricted stock
    
    
    20,489
    
    
    
    
    
    
    
    (158
    )
    
    
    
    
    
    
    (158
    )Exercise of options
    
    
    (330
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    3,230
    
    
    
    
    
    
    
    3,230Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,146
    
    
    
    1,146Balances at November 4, 2007
    
    
    43,970,910
    
    
    $
    440
    
    
    $
    436,984
    
    
    $
    (261,696
    )
    
    $
    175,728
  6




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CSK AUTO CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Thirty-Nine Weeks EndedNovember 4,
    
    
    October 29,2007
    
    
    2006Cash flows provided by (used in) operating activities:Net income
    
    $
    1,146
    
    
    $
    7,532Adjustments:Depreciation and amortization on property and equipment
    
    
    31,020
    
    
    
    30,154Amortization of other items
    
    
    4,033
    
    
    
    6,738Amortization of debt discount and deferred financing costs
    
    
    4,123
    
    
    
    2,737Stock-based compensation expense
    
    
    1,743
    
    
    
    3,325Write downs on disposal of property, equipment and other assets
    
    
    3,803
    
    
    
    2,617Loss on debt retirement
    
    
    
    
    
    
    8,496Deferred income taxes
    
    
    1,512
    
    
    
    5,230Changes in operating assets and liabilities:Receivables
    
    
    9,965
    
    
    
    (9,310
    )Inventories
    
    
    (26,640
    )
    
    
    (9,726
    )Prepaid expenses and other current assets
    
    
    (4,905
    )
    
    
    2,533Accounts payable
    
    
    25,999
    
    
    
    28,899Accrued payroll, accrued expenses and other current liabilities
    
    
    18,667
    
    
    
    3,289Other operating activities
    
    
    (1,496
    )
    
    
    (1,329
    )Net cash provided by operating activities
    
    
    68,970
    
    
    
    81,185Cash flows used in investing activities:Capital expenditures
    
    
    (25,026
    )
    
    
    (25,093
    )Business acquisition
    
    
    
    
    
    
    (3,173
    )Other investing activities
    
    
    (832
    )
    
    
    (1,335
    )Net cash used in investing activities
    
    
    (25,858
    )
    
    
    (29,601
    )Cash flows provided by (used in) financing activities:Borrowings under senior credit facility  line of credit
    
    
    162,900
    
    
    
    63,100Payments under senior credit facility  line of credit
    
    
    (194,900
    )
    
    
    (88,100
    )Borrowings under term loan facility
    
    
    
    
    
    
    350,000Payments under term loan facility
    
    
    (2,612
    )
    
    
    Payment of debt issuance costs
    
    
    (1,357
    )
    
    
    (12,337
    )Retirement of 3.375% exchangeable notes
    
    
    
    
    
    
    (125,000
    )Retirement of 7% senior notes
    
    
    
    
    
    
    (224,960
    )Payments on capital lease obligations
    
    
    (7,323
    )
    
    
    (7,703
    )Proceeds from seller financing arrangements
    
    
    
    
    
    
    428Payments on seller financing arrangements
    
    
    (496
    )
    
    
    (346
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    434Net proceeds from termination of common stock call option and warrants
    
    
    
    
    
    
    1,555Other financing activities
    
    
    (294
    )
    
    
    (369
    )Net cash used in financing activities
    
    
    (44,082
    )
    
    
    (43,298
    )Net increase (decrease) in cash
    
    
    (970
    )
    
    
    8,286Cash and cash equivalents, beginning of period
    
    
    20,169
    
    
    
    17,964Cash and cash equivalents, end of period
    
    $
    19,199
    
    
    $
    26,250
  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
 Business Combinations
 Note 3  Inventories
  
    
    We reduce the FIFO carrying value of our inventory for estimated loss due to shrinkage
since the most recent physical inventory. Shrinkage estimates for each store 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. The percentage for each store is multiplied
by the sales for that store since the last physical inventory through current period end. Our
shrinkage expense for the thirteen and thirty-nine weeks ended November 4, 2007 was
approximately $8.1 million and $21.8 million, respectively, and approximately $7.9 million
and $24.9 million for the thirteen and thirty-nine weeks ended October 29, 2006,
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. On a quarterly basis, we assess whether we
expect to sell any significant amount of inventory below cost and, if so, we estimate and
record an allowance.
 9




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  November 4,
    
    
    February 4,2007
    
    
    2007FIFO Cost
    
    $
    584,018
    
    
    $
    562,405Administrative and overhead costs
    
    
    30,790
    
    
    
    28,725Vendor allowances
    
    
    (64,309
    )
    
    
    (69,469
    )Shrinkage
    
    
    (19,229
    )
    
    
    (18,116
    )Obsolescence
    
    
    (1,843
    )
    
    
    (758
    )Net inventory
    
    $
    529,427
    
    
    $
    502,787
 Note 4  Property and Equipment
  November 4,
    
    
    February 4,2007
    
    
    2007
    
    
    Estimated Useful lifeLand
    
    $
    348
    
    
    $
    348Buildings
    
    
    16,771
    
    
    
    15,251
    
    
    15  25 yearsLeasehold improvements
    
    
    164,632
    
    
    
    159,070
    
    
    Shorter of lease term or useful lifeFurniture, fixtures and equipment
    
    
    178,399
    
    
    
    168,845
    
    
    3  10 yearsProperty under capital leases
    
    
    84,799
    
    
    
    97,974
    
    
    5  15 years or life of leasePurchased software
    
    
    12,572
    
    
    
    10,829
    
    
    5 years457,521
    
    
    
    452,317Less: accumulated
depreciation and amortization
    
    
    (291,705
    )
    
    
    (277,908
    )Property and equipment, net
    
    $
    165,816
    
    
    $
    174,409
   Note 5  Store Closing Costs
  Accounting for
Costs Associated with Exit or Disposal Activities.
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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     Thirty-Nine Weeks EndedNovember 4,
    
    
    October 29,2007
    
    
    2006Balance, beginning of year
    
    $
    4,911
    
    
    $
    7,033Store closing costs:Provision for store closing costs
    
    
    1,328
    
    
    
    174Other revisions in estimates
    
    
    (455
    )
    
    
    (110
    )Accretion
    
    
    177
    
    
    
    226Operating expenses and other
    
    
    703
    
    
    
    755Total store closing costs
    
    
    1,753
    
    
    
    1,045Payments:Rent expense, net of sublease recoveries
    
    
    (1,410
    )
    
    
    (1,819
    )Occupancy and other expenses
    
    
    (1,027
    )
    
    
    (707
    )Sublease commissions and buyouts
    
    
    (1,062
    )
    
    
    (198
    )Total payments
    
    
    (3,499
    )
    
    
    (2,724
    )Ending balance
    
    $
    3,165
    
    
    $
    5,354
  11




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Note 6  Long-Term Debt
 Overview
  November 4,
    
    
    February 4,2007
    
    
    2007Term loan facility
    
    $
    346,513
    
    
    $
    349,125Senior credit facility
    
    
    20,000
    
    
    
    52,00063/4% senior exchangeable notes (1)
    
    
    94,228
    
    
    
    93,061Seller financing arrangements
    
    
    14,303
    
    
    
    13,279Total debt
    
    
    475,044
    
    
    
    507,465Less: Current portion of term loan facility
    
    
    3,452
    
    
    
    3,478Senior credit facility (2)
    
    
    20,000
    
    
    
    52,000Current maturities of seller financing arrangements
    
    
    610
    
    
    
    620Total debt (non-current)
    
    $
    450,982
    
    
    $
    451,367
 
 (1)
    
    Carrying balance reduced by discount of $5.8 million and $6.9 million at November 4, 2007 and February 4, 2007,
respectively, in accordance with EITF No. 06-6.(2)
    
    This portion of the revolving line of credit represents the expected paydown in the following 12-month period. Term Loan Facility
    Senior Credit Facility  Revolving Line of Credit
  12




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS   (Continued)
     63/4% Notes
 3 4 3 4 3 4 3 4 3 4
 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 indenture
 13




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS   (Continued)
 Terms
    
    63/4% NotesIssuance 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
 Seller Financing Arrangements
 The
Effect of Lessee Involvement in Asset Construction.
 14




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS   (Continued)
 Debt Covenants
       Note 7  Accounting for Share-Based Compensation
 Share-Based Payment Accounting
for Stock Issued to Employees
  15




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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
    
    
    Exercise
    
    
    Fair
    
    
    Intrinsic
    
    
    Options
    
    
    Exercisable
    
    
    IntrinsicShares
    
    
    Price
    
    
    Value
    
    
    Value
    
    
    Exercisable
    
    
    Price
    
    
    ValueBalance at February 4, 2007
    
    
    3,280,521
    
    
    $
    14.12Granted at market price
    
    
    1,417,604
    
    
    $
    12.46
    
    
    $
    4.19Exercised
    
    
    
    
    
    $
    Cancelled
    
    
    (195,472
    )
    
    $
    14.41Balance at November 4, 2007
    
    
    4,502,653
    
    
    $
    13.59
    
    
    
    
    
    
    $
    510,281
    
    
    
    2,514,145
    
    
    $
    13.56
    
    
    $
    460,000
 16




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##### Table of Contents



CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS   (Continued)
 Restricted Stock
   Weighted
    
    
    AggregateNumber of
    
    
    Average
    
    
    IntrinsicShares
    
    
    Grant Price
    
    
    ValueNon-vested at February 4, 2007
    
    
    128,309
    
    
    $
    15.86Granted
    
    
    212,686
    
    
    $
    13.40Released
    
    
    (20,481
    )
    
    $
    14.52Cancelled
    
    
    (29,522
    )
    
    $
    15.75Non-vested at November 4, 2007
    
    
    290,992
    
    
    $
    14.21
    
    
    $
    42,683
 Long-Term Incentive Plan
  Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans
  17




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##### Table of Contents



CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS   (Continued)
  Note 8  Income Taxes
 Accounting for Uncertainty in Income
Taxes  an Interpretation of FASB Statement No. 109 Accounting for Income Taxes
     Note 9  Earnings per Share
  Thirteen Weeks Ended
    
    
    Thirty-Nine Weeks EndedNovember 4,
    
    
    October 29,
    
    
    November 4,
    
    
    October 29,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator for basic and diluted earnings per share:Net income (loss)
    
    $
    (5,823
    )
    
    $
    3,158
    
    
    $
    1,146
    
    
    $
    7,532Denominator for basic earnings per share:Weighted average shares outstanding (basic)
    
    
    43,962
    
    
    
    43,867
    
    
    
    43,956
    
    
    
    43,855Denominator for diluted earnings per share:Weighted average shares outstanding (basic)
    
    
    43,962
    
    
    
    43,867
    
    
    
    43,956
    
    
    
    43,855Effect of dilutive securities
    
    
    
    
    
    
    183
    
    
    
    472
    
    
    
    210Weighted average shares outstanding (diluted)
    
    
    43,962
    
    
    
    44,050
    
    
    
    44,428
    
    
    
    44,065Shares excluded as a result of anti-dilution:Stock options and restricted stock
    
    
    3,160
    
    
    
    2,137
    
    
    
    1,613
    
    
    
    2,162
 3 4
 Note 10  Employee Severance and Store Asset Impairment Charges
  18




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##### Table of Contents



CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS   (Continued)
   Accounting for the Impairment of
Disposal of Long-Lived Assets
 Accounting for Costs Associated with Exit or Disposal Activities
 Note 11  Legal Matters
 Audit Committee Investigation and Restatement of the Consolidated Financial Statements
    19




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##### Table of Contents



CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS   (Continued)
   Securities Class Action Litigation
  Shareholder Derivative Litigation
  Governmental Investigations
  20




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##### Table of Contents



CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Other
Litigation
and Proceedings
   Note 12  Subsequent Events
     Debtors Accounting for a
Modification or Exchange of Debt Instruments
 21




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##### Table of Contents



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 480 stores in the Southwestern, Rocky Mountain
and Northern Plains states and Hawaii;
    
    Schucks Auto Supply, founded in 1917, with 223 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 133 stores in the Midwest.
   Recent Developments
 New Executive Vice President of Finance and Chief Financial Officer
 New Senior Vice President of Finance and Controller
 Appointment of New President and Chief Executive Officer; Appointment of New Board Chairman 
 New
Executive Vice President  Merchandising 
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##### Table of Contents



Strategic Review of Business; Store Closures
  Accounting for the Impairment of Disposal of Long-Lived Assets
 Accounting for Costs Associated with Exit or Disposal
Activities
   Combined 2006/2007 Annual Meeting
 Term
Loan Facility Amendment
   Results of Operations
  23




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##### Table of Contents



Thirteen Weeks Ended
    
    Thirty-Nine Weeks EndedNovember 4,
    
    October 29,
    
    November 4,
    
    October 29,2007
    
    2006
    
    2007
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    54.5
    %
    
    
    53.0
    %
    
    
    53.3
    %
    
    
    53.0
    %Gross profit
    
    
    45.5
    %
    
    
    47.0
    %
    
    
    46.7
    %
    
    
    47.0
    %Other costs and expenses:Operating and administrative
    
    
    44.0
    %
    
    
    41.6
    %
    
    
    42.9
    %
    
    
    40.6
    %Investigation and restatement costs
    
    
    0.5
    %
    
    
    1.4
    %
    
    
    0.7
    %
    
    
    1.6
    %Store closing costs
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    0.1
    %Operating profit
    
    
    0.9
    %
    
    
    3.9
    %
    
    
    3.0
    %
    
    
    4.7
    %Interest expense
    
    
    2.8
    %
    
    
    2.8
    %
    
    
    2.8
    %
    
    
    2.4
    %Loss on debt retirement
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    1.4
    %Income (loss) before income taxes and cumulative
effect of change in accounting principle
    
    
    (1.9
    )%
    
    
    1.1
    %
    
    
    0.2
    %
    
    
    0.9
    %Income tax expense (benefit)
    
    
    (0.7
    )%
    
    
    0.5
    %
    
    
    0.1
    %
    
    
    0.4
    %Income (loss) before cumulative effect of change in
accounting principle
    
    
    (1.2
    )%
    
    
    0.6
    %
    
    
    0.1
    %
    
    
    0.5
    %Cumulative effect of change in accounting principle,
net of tax
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.1
    %Net income (loss)
    
    
    (1.2
    )%
    
    
    0.6
    %
    
    
    0.1
    %
    
    
    0.4
    %
 Thirteen Weeks Ended November 4, 2007 Compared to Thirteen Weeks Ended October 29, 2006
     24




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Thirty-Nine Weeks Ended November 4, 2007 Compared to Thirty-Nine Weeks Ended October 29, 2006
     25




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Liquidity and Capital Resources
 Overview of Liquidity
  3 4 3 4
  26




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##### Table of Contents



Analysis of Cash Flows
     Accounting for Uncertainty in Income
Taxes
 Store Closures
  Accounting for
Costs Associated with Exit or Disposal Activities.
  27




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##### Table of Contents



Thirty-Nine Weeks EndedNovember 4,
    
    
    October 29,2007
    
    
    2006Balance, beginning of year
    
    $
    4,911
    
    
    $
    7,033Store closing costs:Provision for store closing costs
    
    
    1,328
    
    
    
    174Other revisions in estimates
    
    
    (455
    )
    
    
    (110
    )Accretion
    
    
    177
    
    
    
    226Operating expenses and other
    
    
    703
    
    
    
    755Total store closing costs
    
    
    1,753
    
    
    
    1,045Payments:Rent expense, net of sublease recoveries
    
    
    (1,410
    )
    
    
    (1,819
    )Occupancy and other expenses
    
    
    (1,027
    )
    
    
    (707
    )Sublease commissions and buyouts
    
    
    (1,062
    )
    
    
    (198
    )Total payments
    
    
    (3,499
    )
    
    
    (2,724
    )Ending balance
    
    $
    3,165
    
    
    $
    5,354
  Factors Affecting Liquidity and Capital Resources
 Sales Trends
  Inflation
  28




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##### Table of Contents



Debt Covenants
       Debtors Accounting for a Modification or Exchange of Debt
Instruments.
    3 4
 29




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##### Table of Contents



3 4
 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
 30




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##### Table of Contents



The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
 31




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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
   Control Environment:
  a) Accounting for Inventory
 32




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##### Table of Contents



b) Accounting for Vendor Allowances
 c) Accounting for Certain Accrued Expenses
 d) Accounting for Store Fixtures and Supplies
 Resources and Policies and Procedures to Ensure Proper and Consistent Application of
GAAP:
 a) Accounting for Leases
 b) Allowance for Sales Returns
 c) Accounting for Certain Accrued Expenses
  33




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##### Table of Contents



PLAN FOR REMEDIATION OF MATERIAL WEAKNESSES
 Remediation Initiatives
    Control Environment:
 General
    34




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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 has reevaluated and enhanced its contract review process, including
training of merchandising, finance and legal staff, 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 systems, processes, and procedures so that its
merchandising, finance and legal staff have more timely information to conduct their
detailed review and provide meaningful input and communication during the contract
negotiation process to determine the accounting treatment for both standard and
non-standard contracts prior to their execution.
    
    Members of management implemented a detailed top vendor review each month resulting
in the annual review of the
business terms in the Companys master vendor agreements with approximately fifty vendors that account for approximately
eighty percent of the vendor allowances from master vendor agreements. The review ensures the terms in their agreements are properly reflected in
recognition spreadsheets.
    
    The Company has conducted training for its merchandising, finance and legal staff
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
 35




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##### Table of Contents



Resources and Policies and Procedures to Ensure Proper and Consistent Application of
GAAP:
 General
    Accounting for Leases
 Allowance for Sales Returns
 Interim Measures Pending Completion of Remediation Initiatives
  
    
    Additional planning, analyses, procedures and management reviews have been performed
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 and/or analytical 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.
 36




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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
  
    
    We hired a Senior Vice President of Finance and Controller.
    
    We trained all merchandising, finance and legal staffs that play a role in vendor
contract activities on certain matters including proper contracting and accounting for
vendor arrangements.
    
    We implemented improved account reconciliation procedures.
    
    We enhanced business system security measures to segregate access based on roles
and responsibilities.
    
    We instituted standardized checklists and other changes to tightly manage and review
the accounting close process.
    
    We clarified and documented job duties in our Finance organization.
 37




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Item 5. Other Information
      
 Item 6. Exhibits
  38




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##### Table of Contents



SIGNATURES
  CSK Auto CorporationDATED:
December 19, 2007
    
    By:
    
    /s/ Lawrence N. Mondry

Lawrence N. MondryPresident and Chief Executive OfficerBy:
    
    /s/ James D. ConstantineJames D. ConstantineExecutive Vice President of Finance and Chief Financial Officer
 39




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3.01
    
    Restated Certificate of Incorporation of the Company, incorporated
herein by reference to Exhibit 3.01 to our Annual Report on Form
10-K, filed on May 4, 1998 (File No. 001-13927).3.02
    
    Certificate of Correction to the Restated Certificate of
Incorporation of the Company, incorporated herein by reference to
Exhibit 3.02 to our Annual Report on Form 10-K, filed on May 4,
1998 (File No. 001-13927).3.03
    
    Certificate of Amendment to the Restated Certificate of
Incorporation of CSK Auto Corporation, incorporated herein by
reference to Exhibit 3.2.1 to our Quarterly Report on Form 10-Q,
filed on September 18, 2002 (File No. 001-13927).3.04
    
    Second Certificate of Amendment of the Restated Certificate of
Incorporation of CSK Auto Corporation, incorporated herein by
reference to Exhibit 3.04 to our Quarterly Report on Form 10-Q,
filed on December 9, 2005 (File No. 001-13927).3.05
    
    Amended and Restated By-laws of the Company, incorporated herein
by reference to Exhibit 3.03 to our Annual Report on Form 10-K,
filed on April 28, 1999 (File No. 001-13927).3.06
    
    First Amendment to Amended and Restated By-laws of the Company,
incorporated herein by reference to Exhibit 3.03.1 to our annual
report on Form 10-K, filed on May 1, 2001 (File No 001-13927).3.07
    
    Second Amendment to Amended and Restated By-laws of the Company,
incorporated herein by reference to Exhibit 3.03.2 to our
Quarterly Report on Form 10-Q, filed on June 14, 2004 (File No.
001-13927).3.08
    
    Third Amendment to Amended and Restated By-Laws of CSK Auto
Corporation, incorporated herein by reference to Exhibit 3.1 to
our Current Report on Form 8-K, filed on August 16, 2007 (File No.
001-13927).3.09
    
    Fourth Amendment to Amended and Restated By-Laws of CSK Auto
Corporation, incorporated herein by reference to Exhibit 3.1 to
our Current Report on Form 8-K, filed on September 5, 2007 (File
No. 001-13927).10.01
    
    Third Amendment, dated as of October 10, 2007, to the Credit
Agreement dated as of June 30, 2006 among CSK Auto, Inc., the
Lenders party thereto, and JPMorgan Chase Bank, N.A., as
Administrative Agent, and Lehman Commercial Paper Inc. and
Wachovia Bank, National Association, as Co-Syndication Agents,
incorporated herein by reference to Exhibit 10.1 to our Current
Report on Form 8-K, filed on October 15, 2007 (File No.
001-13927).10.02
    
    Form of Contract for October 20, 2007 Stock Option Award to
Lawrence Mondry, incorporated herein by reference to Exhibit 10.1
to our Current Report on Form 8-K, filed on October 24, 2007 (File
No. 001-13927).10.03*
    
    Fourth Amendment, dated as of
December 18, 2007, to the Credit Agreement dated as of
June 30, 2006 among CSK Auto, Inc., the Lenders party
thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, and
Lehman Commercial Paper Inc. and Wachovia Bank, National Association,
as Co-Syndication Agents.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 2002.99.01
    
    Fourth Waiver, dated as of August 10, 2007, to the Second Amended
and Restated Credit Agreement, dated as of July 25, 2005, among
CSK Auto, Inc., the Lenders party thereto, the Co-Syndication
Agents and the Co-Documentation Agents party thereto, and JPMorgan
Chase Bank, N.A., as Administrative Agent, incorporated herein by
reference to Exhibit 99.1 to our Current Report on Form 8-K, filed
on August 13, 2007 (File No. 001-13927).
 
 *
    
    Filed herewith.
    
    Employment compensation plans or arrangements. 40