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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 4, 2008
 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)
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



TABLE OF CONTENTS
 PageForward-Looking Statements
    
    2PART 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
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    33Item 4. Controls and Procedures
    
    33PART II  Other InformationItem 1. Legal Proceedings
    
    37Item 1A. Risk Factors
    
    37Item 6. Exhibits
    
    37Signatures
    
    38EX-31.01EX-31.02EX-32.01
    Note Concerning Forward-Looking Information
    2




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3




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PART I
 FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 CSK AUTO CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 May 4,
    
    
    February 3,2008
    
    
    2008ASSETSCash and cash equivalents
    
    $
    19,679
    
    
    $
    16,520Receivables, net
    
    
    36,721
    
    
    
    37,322Inventories, net
    
    
    549,002
    
    
    
    494,651Deferred income taxes
    
    
    44,527
    
    
    
    50,649Prepaid expenses and other current assets
    
    
    50,434
    
    
    
    35,842Total current assets
    
    
    700,363
    
    
    
    634,984Property and equipment, net
    
    
    159,267
    
    
    
    165,115Intangibles, net
    
    
    61,905
    
    
    
    63,020Goodwill
    
    
    224,937
    
    
    
    224,937Deferred income taxes
    
    
    17,288
    
    
    
    15,380Other assets, net
    
    
    33,667
    
    
    
    35,254Total assets
    
    $
    1,197,427
    
    
    $
    1,138,690LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    291,225
    
    
    $
    236,879Accrued payroll and related expenses
    
    
    59,666
    
    
    
    57,593Accrued expenses and other current liabilities
    
    
    98,950
    
    
    
    107,211Current
maturities of long-term debt (Notes 1 and 7)
    
    
    493,443
    
    
    
    50,551Current maturities of capital lease obligations
    
    
    5,982
    
    
    
    6,351Total current liabilities
    
    
    949,266
    
    
    
    458,585Long-term
debt (Notes 1 and 7)
    
    
    16,131
    
    
    
    452,420Obligations under capital leases
    
    
    8,469
    
    
    
    9,866Other liabilities
    
    
    52,662
    
    
    
    53,281Total non-current liabilities
    
    
    77,262
    
    
    
    515,567Commitments and contingenciesStockholders equity:Common stock, $0.01 par value, 90,000,000 shares authorized, 44,035,913
and 44,030,644 shares issued and outstanding at May 4, 2008 and February
3, 2008, respectively
    
    
    440
    
    
    
    440Additional paid-in capital
    
    
    439,086
    
    
    
    438,092Accumulated deficit
    
    
    (268,627
    )
    
    
    (273,994
    )Total stockholders equity
    
    
    170,899
    
    
    
    164,538Total liabilities and stockholders equity
    
    $
    1,197,427
    
    
    $
    1,138,690
  4




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CSK AUTO CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Thirteen Weeks EndedMay 4,
    
    
    May 6,2008
    
    
    2007Net sales
    
    $
    461,104
    
    
    $
    473,035Cost of sales
    
    
    243,801
    
    
    
    252,437Gross profit
    
    
    217,303
    
    
    
    220,598Other costs and expenses:Operating and administrative
    
    
    205,810
    
    
    
    199,234Investigation, litigation and restatement costs
    
    
    983
    
    
    
    4,564Insurance recovery (Note 12)
    
    
    (15,000
    )
    
    
    Store closing costs
    
    
    785
    
    
    
    706Operating profit
    
    
    24,725
    
    
    
    16,094Interest expense, net
    
    
    15,445
    
    
    
    13,322Income before income taxes
    
    
    9,280
    
    
    
    2,772Income tax expense
    
    
    3,913
    
    
    
    1,102Net income
    
    $
    5,367
    
    
    $
    1,670Earnings per common share:Basic
    
    $
    0.12
    
    
    $
    0.04Diluted
    
    $
    0.12
    
    
    $
    0.04Weighted average shares outstanding:Basic
    
    
    44,032
    
    
    
    43,951Diluted
    
    
    44,101
    
    
    
    44,697
  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 3, 2008
    
    
    44,030,644
    
    
    $
    440
    
    
    $
    438,092
    
    
    $
    (273,994
    )
    
    $
    164,538Restricted stock
    
    
    990
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Exercise of options
    
    
    4,279
    
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    40Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    957
    
    
    
    
    
    
    
    957Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,367
    
    
    
    5,367Balances at May 4, 2008
    
    
    44,035,913
    
    
    $
    440
    
    
    $
    439,086
    
    
    $
    (268,627
    )
    
    $
    170,899
  6




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CSK AUTO CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Thirteen Weeks EndedMay 4,
    
    
    May 6,2008
    
    
    2007Cash flows provided by (used in) operating activities:Net income
    
    $
    5,367
    
    
    $
    1,670Adjustments:Depreciation and amortization on property and equipment
    
    
    9,395
    
    
    
    9,947Amortization of other items
    
    
    1,384
    
    
    
    1,336Amortization of debt discount and deferred financing costs
    
    
    1,782
    
    
    
    1,319Stock-based compensation expense
    
    
    1,244
    
    
    
    1,367Write downs of property, equipment and other assets
    
    
    447
    
    
    
    1,398Deferred income taxes
    
    
    3,756
    
    
    
    1,046Changes in operating assets and liabilities:Receivables
    
    
    (229
    )
    
    
    (2,344
    )Inventories
    
    
    (54,351
    )
    
    
    (25,559
    )Prepaid expenses and other current assets
    
    
    (14,592
    )
    
    
    (773
    )Accounts payable
    
    
    54,347
    
    
    
    13,630Accrued payroll, accrued expenses and other current liabilities
    
    
    (6,401
    )
    
    
    4,838Other operating activities
    
    
    189
    
    
    
    (192
    )Net cash provided by operating activities
    
    
    2,338
    
    
    
    7,683Cash flows used in investing activities:Capital expenditures
    
    
    (4,046
    )
    
    
    (8,858
    )Other investing activities
    
    
    (320
    )
    
    
    (477
    )Net cash used in investing activities
    
    
    (4,366
    )
    
    
    (9,335
    )Cash flows provided by (used in) financing activities:Borrowings under senior credit facility  line of credit
    
    
    85,900
    
    
    
    65,600Payments under senior credit facility  line of credit
    
    
    (79,400
    )
    
    
    (57,100
    )Payments under term loan facility
    
    
    (864
    )
    
    
    (873
    )Payment of debt financing costs
    
    
    (125
    )
    
    
    Payments on capital lease obligations
    
    
    (1,694
    )
    
    
    (2,684
    )Proceeds from seller financing arrangements
    
    
    1,550
    
    
    
    Payments on seller financing arrangements
    
    
    (168
    )
    
    
    (156
    )Proceeds from exercise of stock options
    
    
    40
    
    
    
    Other financing activities
    
    
    (52
    )
    
    
    (44
    )Net cash provided by financing activities
    
    
    5,187
    
    
    
    4,743Net increase in cash
    
    
    3,159
    
    
    
    3,091Cash and cash equivalents, beginning of period
    
    
    16,520
    
    
    
    20,169Cash and cash equivalents, end of period
    
    $
    19,679
    
    
    $
    23,260
  7




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CSK AUTO CORPORATION AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
   Note 1  Merger Agreement and Matters Related to the Companys Indebtedness
 Merger Agreement
      8




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  3 4 3 4
  Term Loan Facility Financial Covenants
 3 4
 3 4
 Note 2  Basis of Presentation
  Use of Estimates
  9




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Reclassifications
  Note 3  Recent Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
 Share-Based
Payment Share-Based Payment (see Note 12  Legal
Matters), Share-Based Payment
 Note 4  Inventories
  
    
    The Company reduces the FIFO carrying value of its inventory for estimated loss due to
shrinkage since the most recent physical inventory. Shrinkage expense for the thirteen weeks
ended May 4, 2008, and May 6, 2007 was approximately $7.0 million and $7.5 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.
 10




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 
    
    In certain instances, the Company retains the right to return obsolete and excess
merchandise inventory to its vendors. In situations where the Company does not have a right
to return, the Company records 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, the Company assesses whether it expects to sell any significant amount of
inventory below cost and, if so, estimates and records an allowance.
  May 4,
    
    
    February 3,2008
    
    
    2008FIFO cost
    
    $
    592,296
    
    
    $
    540,094Overhead costs
    
    
    32,882
    
    
    
    29,848Vendor allowances
    
    
    (60,270
    )
    
    
    (60,067
    )Shrinkage
    
    
    (14,016
    )
    
    
    (13,030
    )Obsolescence
    
    
    (1,890
    )
    
    
    (2,194
    )Inventories, net
    
    $
    549,002
    
    
    $
    494,651
 Note 5  Property and Equipment
  May 4,
    
    
    February 3,2008
    
    
    2008
    
    
    Estimated Useful lifeLand
    
    $
    348
    
    
    $
    348Buildings
    
    
    18,941
    
    
    
    18,221
    
    
    15 - 25 yearsLeasehold improvements
    
    
    166,831
    
    
    
    165,380
    
    
    Shorter of lease term or useful lifeFurniture, fixtures and equipment
    
    
    177,646
    
    
    
    182,172
    
    
    3 - 10 yearsProperty under capital leases
    
    
    55,040
    
    
    
    55,417
    
    
    5 - 15 years or life of leasePurchased software
    
    
    12,955
    
    
    
    12,725
    
    
    5 years431,761
    
    
    
    434,263Less: accumulated depreciation and
amortization
    
    
    (272,494
    )
    
    
    (269,148
    )Property and equipment, net
    
    $
    159,267
    
    
    $
    165,115
   Note 6  Store Closing Costs
  Accounting for Costs Associated with Exit or Disposal Activities
 11




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    Thirteen Weeks EndedMay 4,
    
    
    May 6,2008
    
    
    2007SFAS No. 146 liability balance, beginning of year
    
    $
    3,027
    
    
    $
    4,911SFAS No. 146 provision for contractual obligations, net of
estimated sublease income for stores closed during the period
    
    
    270
    
    
    
    831Revisions in SFAS No. 146 estimates
    
    
    452
    
    
    
    (386
    )Accretion
    
    
    32
    
    
    
    58SFAS No. 146 store closing costs expensed in the period
    
    
    754
    
    
    
    503Payments:Contractual obligations, net of sublease recoveries
    
    
    (783
    )
    
    
    (580
    )Sublease commissions and buyouts
    
    
    
    
    
    
    (43
    )Total payments
    
    
    (783
    )
    
    
    (623
    )SFAS No. 146 liability balance, end of period
    
    $
    2,998
    
    
    $
    4,791
  Thirteen Weeks EndedMay 4,
    
    
    May 6,2008
    
    
    2007SFAS No. 146 store closing costs expensed in the period
    
    $
    754
    
    
    $
    503Period costs related to closed stores
    
    
    31
    
    
    
    203Total store closing costs
    
    $
    785
    
    
    $
    706
   Future contractual commitments for rent and occupancy expenses
    
    $
    17,685Estimated sublease income, net of sublease commissions
    
    
    (14,143
    )Accretion expense to be recognized in future periods
    
    
    (544
    )Total liability for store closing costs
    
    $
    2,998
  12




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Thirteen Weeks EndedMay 4,
    
    May 6,2008
    
    2007Number of closed locations, beginning of period
    
    
    148
    
    
    
    175Locations added during the period
    

    4
    

    
    5Locations removed during the period
    
    
    (9
    )
    
    
    (3
    )Net locations added (removed) during the period
    
    
    (5
    )
    
    
    2Number of closed locations, end of period
    
    
    143
    
    
    
    177
  Note 7  Long-Term Debt
 Overview
  May 4,
    
    
    February 3,2008
    
    
    2008Term loan facility
    
    $
    344,783
    
    
    $
    345,647Senior credit facility
    
    
    53,000
    
    
    
    46,50063/4% senior exchangeable notes (1)
    
    
    95,050
    
    
    
    94,635Seller financing arrangements
    
    
    16,741
    
    
    
    16,189Total debt
    
    
    509,574
    
    
    
    502,971Less
current portion:Term loan facility
    
    
    344,783
    
    
    
    3,444Senior credit facility
    
    
    53,000
    
    
    
    46,5006
3/4% senior exchangeable notes (1)
    
    
    95,050
    
    
    
    Current maturities of seller financing arrangements
    
    
    610
    
    
    
    607Total debt (non-current)
    
    $
    16,131
    
    
    $
    452,420
 
 (1)
    
    Carrying balance reduced by discount of $4.9 million and $5.4 million at May 4, 2008 and February 3, 2008, respectively, in accordance with EITF No. 06-6. 13




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Term Loan Facility
    14




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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
 15




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 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 indentureIssuance costs being amortized over a 5-year period, corresponding to the first date the noteholders could require repayment (see Debt Covenants below)
    
    $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 the Companys 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
 16




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 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
 Debt Covenants
      17




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 3 4
  Note 8  Accounting for Share-Based Compensation
  Long-Term Incentive Plan
  Company Stock Plans
  Options Activity
  18




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Weighted
    
    Weighted AverageAverage
    
    Remaining
    
    AggregateNumber of
    
    Exercise
    
    Contractual
    
    IntrinsicShares
    
    Price
    
    Term (Years)
    
    Value(1)Balance at February 3, 2008
    
    
    3,835,792
    
    
    $
    13.70Granted at market price
    
    
    
    
    
    $
    Exercised
    
    
    (4,279
    )
    
    $
    9.16Cancelled
    
    
    (103,136
    )
    
    $
    13.73Balance at May 4, 2008
    
    
    3,728,377
    
    
    $
    13.71
    
    
    
    4.41
    
    
    $
    2,085,700Ending
vested and expected to vest
    
    
    3,391,056
    
    
    $
    13.81
    
    
    
    4.23
    
    
    $
    1,772,400Ending exercisable
    
    
    1,918,098
    
    
    $
    14.39
    
    
    
    2.67
    
    
    $
    494,500
 
 (1)
    
    Based on the Companys closing stock price of $12.01 on May 2, 2008.  Options Outstanding
    
    Options ExercisableWeighted
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    Weighted
    
    
    
    
    
    Average
    
    AggregateRange of
    
    Number
    
    Remaining
    
    Average
    
    
    
    
    
    Exercisable
    
    IntrinsicExercise Prices
    
    Outstanding
    
    Contractual Life
    
    Exercise Price
    
    Exercisable
    
    Price
    
    Value$5.88 - $10.15
    
    
    288,902
    
    
    
    4.00
    
    
    $
    9.65
    
    
    
    128,902
    
    
    $
    9.19$10.53 - $10.80
    
    
    1,053,245
    
    
    
    6.45
    
    
    $
    10.79
    
    
    
    4,850
    
    
    $
    10.69$10.93 - $13.32
    
    
    834,579
    
    
    
    2.08
    
    
    $
    12.96
    
    
    
    834,579
    
    
    $
    12.96$13.46 - $16.62
    
    
    1,170,132
    
    
    
    4.04
    
    
    $
    16.27
    
    
    
    868,248
    
    
    $
    16.16$16.62 - $19.83
    
    
    381,519
    
    
    
    5.35
    
    
    $
    18.62
    
    
    
    81,519
    
    
    $
    18.51$5.88 - $19.83
    
    
    3,728,377
    
    
    
    4.41
    
    
    $
    13.71
    
    
    
    1,918,098
    
    
    $
    14.39
    
    
    $
    494,500
   Restricted Stock Activity
   Weighted
    
    AggregateNumber of
    
    Average
    
    IntrinsicShares
    
    Grant Price
    
    Value(1)Non-vested at February 4, 2008
    
    
    281,621
    
    
    $
    13.23Granted
    
    
    89,899
    
    
    $
    11.93Released
    
    
    (1,570
    )
    
    $
    4.92Cancelled
    
    
    (935
    )
    
    $
    12.78Non-vested at May 4, 2008
    
    
    369,015
    
    
    $
    12.91
    
    
    $
    380,100
 
 (1)
    
    Based on the Companys closing stock price of $ 12.01 on May 2, 2008. 19




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##### Table of Contents



CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 9  Income Taxes
    Note 10  Earnings per Share
 Earnings Per Share
 Thirteen Weeks EndedMay 4,
    
    
    May 6,2008
    
    
    2007Numerator for basic and diluted earnings per share:Net income
    
    $
    5,367
    
    
    $
    1,670Denominator for basic earnings per share:Weighted average shares outstanding (basic)
    
    
    44,032
    
    
    
    43,951Denominator for diluted earnings per share:Weighted average shares outstanding (basic)
    
    
    44,032
    
    
    
    43,951Effect of dilutive securities
    
    
    69
    
    
    
    746Weighted average shares outstanding (diluted)
    
    
    44,101
    
    
    
    44,697Shares excluded as a result of anti-dilution:Stock options and restricted stock
    
    
    3,788
    
    
    
    769
 3 4
 Note 11  Employee Severance and Store Asset Impairment Charges
 Accounting for the Impairment of Disposal of Long-Lived Assets
  20




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CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Accounting for Costs Associated with Exit or Disposal
Activities
 Note 12  Legal Matters
 Fiscal 2006 Audit Committee Investigation and Restatement of the Consolidated Financial Statements
    Securities Class Action Litigation
   21




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##### Table of Contents



CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Insurance Recovery
    Shareholder Derivative Litigation
  Governmental Investigations
  22




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##### Table of Contents



CSK AUTO CORPORATION AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     Other Litigation
  Note 13  Subsequent Events
  23




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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 487 stores in the Southwestern, Rocky Mountain
and Northern Plains states and Hawaii;
    
    Schucks Auto Supply, founded in 1917, with 218 stores in the Pacific Northwest and
Alaska;
    
    Kragen Auto Parts, founded in 1947, with 499 stores primarily in California; and
    
    Murrays Discount Auto Stores, founded in 1972, with 141 stores in the Midwest.
  Recent Developments
 Merger Agreement
     24




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3 4 3 4
 Term Loan Facility Financial Covenants
 3 4
 3 4
 25




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Securities Class Action Litigation
 
 Insurance Recovery
    Governmental Investigations
    26




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##### Table of Contents



Results of Operations
   Thirteen Weeks EndedMay 4,
    
    May 6,2008
    
    2007Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    52.9
    %
    
    
    53.4
    %Gross profit
    
    
    47.1
    %
    
    
    46.6
    %Other costs and expenses:Operating and administrative
    
    
    44.6
    %
    
    
    42.1
    %Investigation, litigation and restatement costs
    
    
    0.2
    %
    
    
    1.0
    %Insurance recovery
    
    
    -3.3
    %
    
    
    0.0
    %Store closing costs
    
    
    0.2
    %
    
    
    0.1
    %Operating profit
    
    
    5.4
    %
    
    
    3.4
    %Interest expense, net
    
    
    3.3
    %
    
    
    2.8
    %Income before income taxes
    
    
    2.1
    %
    
    
    0.6
    %Income tax expense
    
    
    0.8
    %
    
    
    0.2
    %Net income
    
    
    1.3
    %
    
    
    0.4
    %
 Thirteen Weeks Ended May 4, 2008 Compared to Thirteen Weeks Ended May 6, 2007
     27




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28




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Liquidity and Capital Resources
 Overview of Liquidity
  3 4 3 4 3 4
  Analysis of Cash Flows
    Off-Balance Sheet Arrangements and Contractual Obligations
   29




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Accounting for
Uncertainty in Income Taxes
   
    
    New severance plan for corporate headquarters facilities personnel not covered by other
agreements or arrangements that provides for enhanced severance benefits for certain
position levels in the context of termination of employment in conjunction with a change in
control;
    
    New severance agreements providing for standard and change in control severance benefits
for Regional Vice Presidents;
    
    Amendments to existing corporate Vice President severance agreements that eliminate
mitigation and offset requirements upon a termination of employment in a change in control
context;
    
    Amendments to existing severance and retention arrangements for senior officers
providing for enhanced severance benefits upon termination of employment in the context of
a change in control; and
    
    Retention bonuses for certain personnel.
 Store Closing Costs
   Factors Affecting Liquidity and Capital Resources
 Sales Trends
  30




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Inflation
  Debt Covenants
     3 4
 3 4
  31




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Interest Rates
   Critical Accounting Matters
  Recent Accounting Pronouncements
  32




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
    MATERIAL WEAKNESSES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
   1)
    
    Resources, and Policies and Procedures to Ensure Proper and Consistent Application of
GAAP  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 and procedures contributed to the following additional material
weakness:a)
    
    Financial Reporting The Company did not maintain effective controls over the
completeness and accuracy of its period-end financial reporting process. Specifically,
effective controls, including monitoring, were not maintained to ensure (i) timely
resolution of reconciling items and review of account reconciliations over certain
balance sheet accounts, (ii) timely recording of required period-end adjustments, and
(iii) accumulation and review of all required supporting information to ensure the
completeness and accuracy of the consolidated financial statements and disclosures.
  2) Accounting for Inventory
 33




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3) Accounting for Vendor Allowances
 4) Accounting for Certain Accrued Expenses
  PLAN FOR REMEDIATION OF MATERIAL WEAKNESSES
 Remediation Initiatives
     34




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Interim Measures Pending Completion of Remediation Initiatives
  
    
    Additional planning, analysis and 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 procedures to ensure that
affected amounts are fairly stated for all periods presented in this
Quarterly Report.
 35




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
    
    The Company retained 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 2008 quarterly reporting process.
    
    The Company conducted a detailed and extensive review of account
reconciliations, non-routine transactions and agreements, and
financial statement classifications for accuracy and conformance with
GAAP.
 Control deficiencies not constituting material weaknesses
  Managements conclusions
   CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
  36




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PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits
  37




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SIGNATURES
  CSK Auto CorporationDATED: June 13, 2008By:
    /s/ Lawrence N. MondryLawrence N. MondryPresident and Chief Executive OfficerBy:
    /s/ James D. ConstantineJames D. ConstantineExecutive Vice President of Finance and Chief Financial Officer 38




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description2.01
    
    Agreement and Plan of Merger among OReilly Automotive, Inc., OC
Acquisition Company and CSK Auto Corporation, dated April 1, 2008,
incorporated herein by reference to Exhibit 2.1 to our Current
Report on Form 8-K, filed on April 7, 2008 (File No. 001-13927).3.01
    
    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).4.01
    
    Rights Agreement, dated February 4, 2008, by and between CSK Auto
Corporation and Mellon Investor Services LLC, as Rights Agent,
incorporated herein by reference to Exhibit 1 to our Registration
Statement on Form 8-A, filed on February 5, 2008 (File No.
001-13927).10.01
    
    First Amendment to the CSK Auto Corporation 1996 Associate Stock
Option Plan, effective as of March 31, 2008, incorporated herein
by reference to Exhibit 10.4.1 to our Annual Report on Form 10-K,
filed on April 18, 2008 (File
No. 001-13927).10.02
    
    First Amendment to the CSK Auto Corporation 1996 Executive Stock
Option Plan, effective as of March 31, 2008, incorporated herein
by reference to Exhibit 10.7.1 to our Annual Report on Form 10-K,
filed on April 18, 2008 (File
No. 001-13927).10.03
    
    First Amendment to the CSK Auto Corporation 1999 Employee Stock
Option Plan, effective as of March 31, 2008, incorporated herein
by reference to Exhibit 10.9.1 to our Annual Report on Form 10-K,
filed on April 18, 2008 (File
No. 001-13927).10.04
    
    First Amendment to the CSK Auto Corporation 2004 Stock and
Incentive Plan, effective as of March 31, 2008, incorporated
herein by reference to Exhibit 10.11.1 to our Annual Report on
Form 10-K, filed on April 18, 2008 (File No. 001-13927).10.05
    
    Form of Amended and Restated Severance and Retention Agreement
between CSK Auto, Inc. and each of its then senior executive
officers (other than Lawrence Mondry), incorporated herein by
reference to Exhibit 10.24 to our Annual Report on Form 10-K,
filed on April 18, 2008 (File No. 001-13927).10.06
    
    Second Amendment to Amended and Restated Outside Director
Compensation Policy, effective as of March 7, 2008, incorporated
herein by reference to Exhibit 10.29.2 to our
 39




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ExhibitNumber
    
    DescriptionAnnual Report on
Form 10-K, filed on April 18, 2008
(File
No. 001-13927).10.07
    
    First Amendment to Employment Agreement, dated as of March 31,
2008, by and between CSK Auto, Inc., and Lawrence N. Mondry,
incorporated herein by reference to Exhibit 10.38.1 to our Annual
Report on Form 10-K, filed on April 18, 2008 (File No.
001-13927).10.08
    
    2008 Cash in Lieu Bonus Plan, dated March 18, 2008, incorporated
herein by reference to Exhibit 10.42 to our Annual Report on Form
10-K, filed on April 18, 2008 (File No. 001-13927).10.08.1
    
    Form of Notice of Participation in 2008 Cash in Lieu Bonus Plan,
incorporated herein by reference to Exhibit 10.42.1 to our Annual
Report on Form 10-K, filed on April 18, 2008 (File No.
001-13927).10.9
    
    Side Letter between CSK Auto, Inc., CSK Auto Corporation and
Michael Bryk, dated March 31, 2008, regarding reimbursement for
travel and temporary living expenses, incorporated herein by
reference to Exhibit 10.43 to our Annual Report on Form 10-K,
filed on April 18, 2008 (File No. 001-13927).10.10
    
    Side Letter between CSK Auto, Inc., CSK Auto Corporation and James
Constantine, dated March 31, 2008, regarding reimbursement for
travel and temporary living expenses, incorporated herein by
reference to Exhibit 10.44 to our Annual Report on Form 10-K,
filed on April 18, 2008 (File No. 001-13927).10.11
    
    Side Letter between CSK Auto, Inc., CSK Auto Corporation and Randi
Morrison, dated March 31, 2008, regarding reimbursement for travel
and temporary living expenses, incorporated herein by reference to
Exhibit 10.45 to our Annual Report on Form 10-K, filed on April
18, 2008 (File No. 001-13927).10.12
    
    Side Letter between CSK Auto, Inc., CSK Auto Corporation and Brian
Woods, dated March 31, 2008, regarding reimbursement for travel,
temporary living expenses, and relocation costs, incorporated
herein by reference to Exhibit 10.46 to our Annual Report on Form
10-K, filed on April 18, 2008 (File No. 001-13927).10.13
    
    2008 General and Administrative Staff Incentive Plan, incorporated
herein by reference to Exhibit 10.47 to our Annual Report on Form
10-K, filed on April 18, 2008 (File No. 001-13927).10.14
    
    2008 Executive Incentive Plan for Lawrence N. Mondry, incorporated
herein by reference to Exhibit 10.48 to our Annual Report on Form
10-K, filed on April 18, 2008 (File No. 001-13927).10.15
    
    Form of Restricted Stock Agreement between CSK Auto, Inc. and
Lawrence N. Mondry, incorporated herein by reference to Exhibit
(e)(17) of our Solicitation/Recommendation Statement on Schedule
14D-9, filed on June 11, 2008
(File No. 005-55039).
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. 40