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SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission File Number 001-13927

CSK Auto Corporation

(602) 265-9200

N/A

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o.

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes þ          No o.

     As of September 11, 2003, CSK Auto Corporation had 45,526,729 shares of common stock outstanding.

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PART I

FINANCIAL INFORMATION

Item 1.     Financial Statements

CSK AUTO CORPORATION AND SUBSIDIARIES

The accompanying notes are an integral part of these consolidated financial statements.

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CSK AUTO CORPORATION AND SUBSIDIARIES

The accompanying notes are an integral part of these consolidated financial statements.

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CSK AUTO CORPORATION AND SUBSIDIARIES

The accompanying notes are an integral part of these consolidated financial statements.

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CSK AUTO CORPORATION AND SUBSIDIARIES

The accompanying notes are an integral part of these consolidated financial statements.

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CSK AUTO CORPORATION AND SUBSIDIARIES

      CSK Auto Corporation is a holding company. At August 3, 2003, CSK Auto Corporation had no business activity other than its investment in CSK Auto, Inc. (“Auto”), a wholly owned subsidiary. On a consolidated basis, CSK Auto Corporation and its subsidiaries are referred to herein as the “Company”, “we”, “us”, or “our”.

      Auto is a specialty retailer of automotive aftermarket parts and accessories. At August 3, 2003, we operated 1,108 stores in 19 states as a fully integrated company and single business segment under three brand names: Checker Auto Parts, founded in 1969 and operating in the Southwestern, Rocky Mountain and Northern Plains states and Hawaii; Schuck’s Auto Supply, founded in 1917 and operating in the Pacific Northwest and Alaska; and Kragen Auto Parts, founded in 1947 and operating primarily in California.

Note 1 — Basis of Presentation

      We prepared the unaudited consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), and accordingly did not include all information and footnotes required by generally accepted accounting principles. In the opinion of management, the consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of our financial position and the results of our operations. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto for the fiscal year ended February 2, 2003, as included in our Annual Report on Form 10-K filed with the SEC on May 7, 2003.

      Certain amounts in the prior year’s financial statements have been reclassified to conform to the current year presentation. This has no impact on previously reported financial position, results of operations or cash flows.

Note 2 — Change in Accounting Principle

      In March 2003, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) reached consensus on certain matters discussed in EITF 02-16, “Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor”. EITF 02-16 states that allowances provided by our vendors are presumed to be a reduction in the costs of purchasing inventories (to be recognized in inventory and cost of sales), except for that portion that is a reimbursement for costs incurred by us to sell the vendors’ products. In order to qualify as a reimbursement, the costs must be specific, identifiable and incremental, to be recognized as a reduction to operating and administrative expenses. Under previous accounting guidance, we accounted for all non-performance based vendor allowances as a reduction of inventory cost and allocated performance based vendor allowances as a reduction of advertising expense or cost of goods sold, as appropriate, in the period the expense was incurred. During the first quarter of fiscal 2003, we adopted the provisions of EITF 02-16 and implemented a policy of considering all cooperative advertising arrangements to be a reduction of product costs, unless we are specifically required to substantiate advertising costs incurred to the vendor and do so in the normal course of business.

      In the thirteen and twenty-six weeks ended August 4, 2002, vendor allowances totaling approximately $2.1 million and $7.8 million were classified as a reduction to advertising expense (in operating and administrative expense) rather than as a reduction to cost of sales as currently required by EITF 02-16. The

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

following table adjusts the amounts reported for cost of sales, gross margin and operating and administrative expenses from the first half of fiscal 2002 to be comparable with current requirements of EITF 02-16:

      The change in accounting principle had no impact on cash flow. We do not expect EITF 02-16 to have a material impact on net income for the remaining quarters of fiscal 2003.

      In April 2002, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 145, “Rescission of FASB Statements 4, 44, and 64, Amendment of FASB Statement 13, and Technical Corrections.” SFAS No. 145 addresses, among other things, the reporting of debt extinguishments. We adopted SFAS No. 145 on February 3, 2003. Consistent with SFAS No. 145, any gain or loss on extinguishment of debt that previously would have been classified as an extraordinary item and does not meet the criteria in APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” for classification as an extraordinary item shall be presented as an ordinary item before the provision for income taxes. Under SFAS No. 145, prior periods must be reclassified to be comparable. Accordingly, for the second quarter and first half of fiscal 2003 and 2002, we presented losses on debt retirement of $4.3 million and $6.0 million, respectively, as a separate line in our consolidated statements of operations as a component of income before income taxes.

Note 3 — Recent Accounting Pronouncements

      In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement applies to all entities that have legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the asset. We adopted SFAS No. 143 on February 3, 2003. The adoption of this standard did not have an impact on our financial statements.

      In January 2003, the FASB issued FASB Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB 51”. The primary objectives of FIN No. 46 are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights (Variable Interest Entities) and how to determine when and which business enterprise should consolidate the Variable Interest Entity (the primary beneficiary). We do not have any transactions or relationships with unconsolidated variable interest entities and, therefore, FIN No. 46 does not impact our financial statements.

      In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” which amends SFAS No. 133. This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133, “Accounting for

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Derivative Instruments and Hedging Activities.” This statement is effective for contracts entered into or modified after June 30, 2003. The adoption of this statement did not have an impact on our financial statements.

      In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. The standard improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. The standard requires that those instruments be classified as liabilities in statements of financial position. This standard is effective for interim periods beginning after June 15, 2003. We do not anticipate that the adoption of this standard will have an impact on our financial statements.

Note 4 — Inventories

      Inventories are valued at the lower of cost or market, our cost being determined utilizing the LIFO method. Our inventory levels have been generally consistent in recent years and thus, under LIFO, costs of sales reflect the costs of the most currently purchased inventories. Inventory carrying values for financial statement purposes, on the other hand, reflect the costs relating to prices paid in prior years under the LIFO method. Our costs of acquiring inventories have been decreasing in recent years as our increased size and cash flows have enabled us to take advantage of volume discounts and lower product acquisition costs. Accordingly, it costs us less money to replace inventory today than the LIFO balances carried for similar inventory reflected in our financial statements. As a result of the LIFO method of accounting for inventory and the ability to obtain product at lower acquisition costs, we recorded reductions to cost of goods sold of $2.0 million and $4.0 million for the thirteen weeks ending August 3, 2003 and August 4, 2002, and $10.3 million and $11.3 million for the twenty-six weeks ending August 3, 2003 and August 4, 2002, respectively.

      The replacement cost of inventories approximated $568.6 million and $545.0 million at August 3, 2003 and February 2, 2003, respectively, as compared to financial statement carrying values of $684.7 million and $650.8 million. While carrying balances are higher than replacement costs, such carrying balances are not higher than the net realizable value amount (“NRV”) we expect to earn by selling the inventory through our retail stores in the normal course of business. We evaluate the difference between carrying balances and NRV of our inventories before each balance sheet reporting date. If our evaluation were to indicate that carrying values exceed the NRV of the inventories, the carrying balances of the inventory would be reduced to NRV, with a corresponding charge to operations.

Note 5 — Store Closing Costs

      We provide an allowance for estimated costs and losses to be incurred in connection with store closures. On an on-going basis, store locations are reviewed and analyzed based on several factors including market saturation, store profitability and cash flow, and store size and format. In addition, we analyze sales trends and geographical and competitive factors to determine the viability and future profitability of our store locations. If a store location does not meet our required projections, it is designated for closure. As a result of our acquisitions over the last several years, we have closed numerous locations primarily as a result of store overlap with previously existing store locations.

      The allowance for store closing costs is included in accrued expenses and other long term liabilities in the accompanying financial statements and primarily consists of three components: (1) future rents to be paid over the remaining terms of the lease agreements for the stores (net of estimated probable sublease recoveries); (2) lease commissions associated with the anticipated store subleases; and (3) occupancy expenses associated with the closed store vacancy periods. Prior to the adoption of SFAS No. 146 on January 1, 2003, such costs were recognized when a store was specifically identified, costs could be estimated and closure was planned to be completed within the next twelve months. No provision was made for employee termination costs. For stores to be relocated, such costs were recognized when an agreement for the new

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

location was reached with a landlord and site plans met preliminary municipal approvals. During the period that they remained open for business, the rent and other operating expenses for the stores to be closed continued to be reflected in normal operating expenses.

      In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires companies to recognize the present value of costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease rental and termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, store closing, or other exit or disposal activity. SFAS No. 146 is required to be applied prospectively to exit or disposal activities initiated after December 31, 2002. We did not incur any new liability related to a store closure during the first half of fiscal 2003.

      As of August 3, 2003, we had a total of 196 store locations included in the allowance for store closing costs. Of this total, 35 locations were vacant, 160 locations were subleased and one location was identified for closure but remained open. In addition to these stores, we had 59 service centers of which 3 were vacant and 56 were subleased. Future rents will be incurred through the expiration of the non-cancelable leases, the longest of which runs through January 2018. As of August 3, 2003, we have one store accrued during the 2002 fiscal plan year that remained open and was identified for closure prior to our implementation of SFAS No. 146.

      Activity in the reserve for store closings and the related store closing costs for the first half of fiscal 2003 is as follows ($ in thousands):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 6 — Debt

      Outstanding debt, excluding capital leases, is comprised of the following ($ in thousands):

      In June 2003, we replaced our $300.0 million credit facility with a new $325.0 million senior collateralized, asset based credit facility consisting of a $200.0 million term loan and a $125.0 million revolving credit facility. As of August 3, 2003, there were no borrowings under the revolving credit facility. The new term loan is to be repaid in twelve installments consisting of ten $1.0 million dollar payments made semi-annually beginning in December 2003. The last two payments are for $95.0 million each in December 2008 and at maturity, June 2009. The revolving credit facility matures in June 2008. The maturity dates on our $280.0 million 12% Senior Notes must be extended by CSK Auto, Inc. prior to February 15, 2006 or the entire credit facility will be due and payable on February 15, 2006. Interest accrues under the new credit facility based on our borrowing decisions at a variable rate, which is a function of the spread over the Base rate (as defined in the agreement) or the Eurodollar rate (as defined in the agreement). The new credit facility carries interest rate spreads that are 0.50% to 0.75% lower than our prior facility. As of August 3, 2003, we were in compliance with the financial covenants and we anticipate meeting all required covenants under the new credit facility during the remainder of fiscal 2003.

      At the time of the June 2003 refinancing, we applied the provisions of EITF 98-14 “Debtor’s Accounting for Changes in Line of Credit or Revolving Debt Arrangements” for the revolving credit portion of the credit facility and EITF 96-19 “Debtor’s Accounting for a Modification or Exchange of Debt Instruments” for the term portion of the credit facility. We expensed $3.8 million of certain unamortized debt issuance costs and certain direct costs associated with the new facility. Our carrying value of deferred debt issuance costs of approximately $4.1 million (as of the transaction date) is being amortized to interest expense over the corresponding life of the respective portion of the credit facility.

      We used proceeds from our new credit facility to redeem the remaining $9.5 million in aggregate principal amount of CSK Auto, Inc.’s 11% Senior Subordinated Notes, including accrued and unpaid interest associated therewith. In connection with this redemption, we paid $0.3 million of early redemption premium and expensed $0.2 million of unamortized deferred debt issuance costs. These costs, along with the $3.8 million in costs disclosed in the paragraph above, are reflected as a loss on debt retirement in the accompanying consolidated statement of operations.

      During February 2002, we entered into an interest rate swap agreement which converted the interest rate payment obligation on $100.0 million of our 12% Senior Notes to a floating rate in order to hedge the fair value of such notes against potential movements in market interest rates. On June 5, 2003, we terminated the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

swap agreement and received in consideration thereof the sum of $6.0 million, which represents the fair market value of the swap agreement on that date. This fair market value adjustment is currently reflected on our consolidated balance sheet as part of our long term debt. This amount will be amortized as an offset to interest expense through the maturity date of the 12% Senior Notes (June 15, 2006).

Note 7 — Earnings Per Share

      Calculation of the numerator and denominator used in computing per share amounts is summarized as follows (in thousands):

Note 8 — Stock Based Compensation

      We have stock-based employee compensation plans which are described further in Note 12 of the Notes to Consolidated Financial Statements in our 2002 Annual Report on Form 10-K filed with the SEC on May 7, 2003. We account for our stock-based compensation plans under Accounting Principles Board Opinion No. 25, (“APB 25”) “Accounting for Stock Issued to Employees” and the related interpretations, for which no compensation cost is recorded in the statement of operations for the estimated fair value of stock options issued with an exercise price equal to the fair value of the common stock on the date of grant. SFAS No. 123, “Accounting for Stock-based Compensation”, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”, requires that companies which do not elect to account for stock-based compensation as prescribed by this statement disclose the pro forma effects on earnings and earnings per share as if SFAS No. 123 had been adopted.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      If we applied the recognition provisions of SFAS No. 123 using the Black-Scholes option-pricing model, the resulting pro forma net income available to common shareholders, and pro forma net income available to common shareholders per share would be as follows (in thousands, except per share data):

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      Our business is somewhat seasonal in nature, with the highest sales occurring in the months of June through October (overlapping our second and third fiscal quarters). In addition, our business is affected by weather conditions. While unusually severe or inclement weather tends to reduce sales, as our customers are more likely to defer elective maintenance during such periods, extremely hot and cold temperatures tend to increase sales by causing auto parts to fail and sales of seasonal products to increase.

      In March 2003, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) reached consensus on certain matters discussed in EITF 02-16, “Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor”. EITF 02-16 states that allowances provided by our vendors are presumed to be a reduction in the costs of purchasing inventories (to be recognized in inventory and cost of sales), except for that portion that is a reimbursement for costs incurred by us to sell the vendors’ products. In order to qualify as a reimbursement, the costs must be specific, identifiable and incremental, to be recognized as a reduction to operating and administrative expenses. Under previous accounting guidance, we accounted for all non-performance based vendor allowances as a reduction of inventory cost and allocated performance based vendor allowances as a reduction of advertising expense or cost of goods sold, as appropriate, in the period the expense was incurred. During the first quarter of fiscal 2003, we adopted the provisions of EITF 02-16 and implemented a policy of considering all cooperative advertising arrangements to be a reduction of product costs, unless we are specifically required to substantiate advertising costs incurred to the vendor and do so in the normal course of business.

      In the thirteen and twenty-six weeks ended August 4, 2002, vendor allowances totaling approximately $2.1 million and $7.8 million were classified as a reduction to advertising expense (in operating and administrative expense) rather than as a reduction to cost of sales as currently required by EITF 02-16. The following table adjusts the amounts reported for cost of sales, gross margin and operating and administrative expenses from the first half of fiscal 2002 to be comparable with current requirements of EITF 02-16:

      The change in accounting principle had no impact on cash flow. We do not expect EITF 02-16 to have a material impact on net income for the remaining quarters of fiscal 2003.

      In April 2002, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 145, “Rescission of FASB Statements 4, 44, and 64, Amendment of FASB Statement 13, and Technical Corrections.” SFAS No. 145 addresses, among other things, the reporting of debt extinguishments. We adopted SFAS No. 145 on February 3, 2003. Consistent with SFAS No. 145, any gain or loss on extinguishment of debt that previously would have been classified as an extraordinary item and does not meet the criteria in APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” for classification as an extraordinary item shall be presented as an ordinary item before the provision for income taxes. Under SFAS No. 145, prior periods must be reclassified to be comparable. Accordingly, for the second quarter and first half of fiscal 2003 and 2002, we presented losses on debt

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      The following table expresses the statements of operations as a percentage of sales for the periods shown: