<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1996
REGISTRATION NO. 333-6893
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CSK AUTO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5531 86-0221312
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
CSK AUTO, INC. 645 E. MISSOURI JAMES G. BAZLEN CSK AUTO, INC. 645 E.
AVENUE PHOENIX, ARIZONA 85012 (602) MISSOURI AVENUE PHOENIX, ARIZONA 85012
265-9200 (602) 265-9200
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE,
TELEPHONE NUMBER, INCLUDING AREA CODE, AND TELEPHONE NUMBER, INCLUDING AREA
OF REGISTRANT'S PRINCIPAL EXECUTIVE CODE, OF AGENT FOR SERVICE)
OFFICES)
----------------
COPIES TO:
MARK S. HIRSCH, ESQ. PARKER CHAPIN MARK R. SAUNDERS, ESQ. BROWN & WOOD
FLATTAU & KLIMPL, LLP 1211 AVENUE OF ONE WORLD TRADE CENTER NEW YORK, NEW
THE AMERICAS NEW YORK, NEW YORK 10036 YORK 10048 (212) 839-5300
(212) 704-6000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
----------------
If any securities being registered on this form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
of the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
CSK AUTO, INC.
CROSS REFERENCE SHEET
----------------
Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K Showing
Location in Prospectus of Information Required by Items of Part I of Form S-1.
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
----------------------- ---------------------------------
<S> <C>
1.Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus.......................... Outside Front Cover Page of
2.Inside Front and Outside Back Cover Prospectus
Pages of Prospectus................. Inside Front Cover Page of
Prospectus; Outside Back Cover Page
of Prospectus; Additional
3.Summary Information, Risk Factors and Information
Ratio of Earnings to Fixed Charges.. Prospectus Summary; Risk Factors
4.Use of Proceeds....................... Use of Proceeds; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations
5.Determination of Offering Price....... Outside Front Cover Page of
Prospectus; Underwriting
6.Dilution.............................. Dilution
7.Selling Security Holders.............. Not Applicable
8.Plan of Distribution.................. Outside Front Cover Page of
Prospectus; Underwriting
9.Description of Securities to be
Registered.......................... Prospectus Summary; Description of
10.Interests of Named Experts and Capital Stock
Counsel............................. Not Applicable
11.Information with Respect to the
Registrant.......................... Outside Front Cover Page of
Prospectus; Additional Information;
Prospectus Summary; Risk Factors;
Use of Proceeds; Dividend Policy;
Capitalization; Dilution; Selected
Consolidated Financial Data;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Stockholders; Shares
Eligible for Future Sale; The
Merger; Description of Capital
Stock; Legal Matters; Experts;
12.Disclosure of Commission Position on Consolidated Financial Statements
Indemnification for Securities Act
Liabilities......................... Not Applicable
</TABLE>
<PAGE>
EXPLANATORY NOTE
The term "Company" when used in this Prospectus includes CSK Auto, Inc. and
its wholly owned subsidiaries, after giving effect to the merger with and into
CSK Auto, Inc. (prior to the completion of this offering) of Northern
Automotive Corporation, an Arizona corporation ("NAC"), which currently
operates the Company's automotive parts retailing business. CSK Auto, Inc. is
a Delaware corporation recently formed for the sole purpose of consummating
the merger and effecting the reincorporation of NAC as a Delaware corporation.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 12, 1996
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
6,700,000 SHARES
CSK AUTO, INC.
[LOGO]
COMMON STOCK
-----------
All of the 6,700,000 shares of Common Stock offered hereby (the "Offering")
are being sold by CSK Auto, Inc. (the "Company").
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $14.00 and $16.00 per share. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price of the
Common Stock.
Application has been made to have the Common Stock offered hereby listed on
the New York Stock Exchange under the symbol " ."
SEE "RISK FACTORS," BEGINNING ON PAGE 9, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HASTHE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THISPROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
- --------------------------------------------------------------------------------
Total (3)..................................... $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deduction of expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters an option, exercisable within 30
days, to purchase up to 1,005,000 additional shares of Common Stock on the
same terms as set forth above, solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
-----------
The shares are offered by the several Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters. The Underwriters reserve
the right to withdraw, cancel or modify such offer and to reject orders in
whole or in part. It is expected that delivery of the shares will be made in
New York, New York on or about , 1996.
-----------
DONALDSON, LUFKIN & JENRETTE
MERRILL LYNCH & CO. SECURITIES CORPORATION
FURMAN SELZ
LEHMAN BROTHERS
SALOMON BROTHERS INC
-----------
The date of this Prospectus is , 1996
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). The
Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include any
amendments thereto) on Form S-1 under the Securities Act of 1933, as amended
(the "Securities Act") with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement,
including the exhibits and schedule thereto, copies of which may be examined
without charge at the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the regional offices of the Commission located at 7
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, 14th Floor, Chicago, Illinois 60661-2511. Copies of
such materials may be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at its public reference facilities in New York, New York, and Chicago,
Illinois, at prescribed rates. This Registration Statement has been filed
electronically through the Electronic Data Gathering, Analysis, and Retrieval
system (EDGAR) and is publicly available through the Commission's web site
(http://www.sec.gov). Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each statement
being qualified in all respects by such reference.
Immediately following the Offering, the Company will become subject to the
periodic reporting and other informational requirements of the Exchange Act.
As long as the Company is subject to such periodic reporting and information
requirements, it will file with the Commission all reports, proxy statements,
and other information required thereby. The Company intends to furnish holders
of the Common Stock with annual reports containing financial statements
audited by an independent certified public accounting firm and quarterly
reports containing unaudited financial information for the first three
quarters of each fiscal year.
The Company owns the federally-registered service mark "Schuck's" for use in
connection with the automotive parts retailing business and owns rights to use
the tradenames "Checker" and "Kragen." This Prospectus also includes product
names and other tradenames and service marks of the Company and of other
companies.
2
<PAGE>
PROSPECTUS SUMMARY
This summary should be read in conjunction with and is qualified in its
entirety by the more detailed information and Consolidated Financial
Statements, including the Notes thereto, appearing elsewhere in this
Prospectus. As used in this Prospectus unless otherwise indicated, the
"Company" refers to CSK Auto, Inc. and its subsidiaries (after giving effect to
the merger referred to below), and references to the Company's fiscal year mean
the fiscal year ended on the Sunday nearest January 31 of the following
calendar year (e.g., fiscal 1995 means the fiscal year ended January 28, 1996).
Except as otherwise noted, as used in this Prospectus all share and per share
data and information relating to the number of shares of common stock, par
value $.001 per share, of the Company (the "Common Stock") outstanding (i) have
been adjusted to give effect to the merger to be consummated prior to the
completion of the Offering whereby Northern Automotive Corporation ("NAC"),
which currently operates the Company's automotive parts retailing business,
will merge with and into the Company (the "Merger") and (ii) assume no exercise
of the Underwriters' over-allotment option. See "Capitalization," "The Merger"
and "Underwriting." Investors should carefully consider the information set
forth under "Risk Factors" prior to making a decision to purchase any shares of
Common Stock offered hereby.
THE COMPANY
CSK Auto, Inc. (the "Company") is the largest retailer of automotive parts
and accessories in the Western United States and one of the largest such
retailers in the United States. As of April 28, 1996, the Company operated 569
stores as a fully integrated chain under three tradenames, each of which at one
time represented a separate retail chain: Checker Auto Parts, founded in 1968
and operating in the Southwestern and Rocky Mountain states; Schuck's Auto
Supply, founded in 1917 and operating in the Pacific Northwest; and Kragen Auto
Parts, founded in 1947 and operating primarily in California. As such, each has
a long operating history, established name recognition and customer loyalty in
its respective markets. Based on store count, the Company believes it is the
largest retailer of automotive parts and accessories in 18 of its 24 markets.
The Company is a consumer-oriented, specialty retailer primarily servicing
the do-it-yourself ("DIY") customer, with an increasing emphasis on the
commercial customer. The Company offers a broad selection of national brand
name and private label automotive products for domestic and imported cars, vans
and light trucks, including new and remanufactured automotive hard parts,
maintenance items and accessories. The Company's operating strategy is to offer
these products at generally the lowest prices in each of its markets and at
conveniently located and attractively designed stores, supported by
knowledgeable and courteous customer service personnel. As a specialty
retailer, the Company has chosen not to sell tires or perform automotive
repairs.
In order to improve the efficiency of its operations, enhance customer
service and position the Company for future growth, the Company began in fiscal
1994 to implement a sophisticated, centralized infrastructure and to install
various store-based information systems. At the same time, the Company
initiated its Commercial Sales Program. Implementation of these strategies
involved capital expenditures (including capital leases) of approximately $30.1
million during fiscal 1994 and 1995 and operating costs of approximately $15.5
million during fiscal 1995, which contributed to a net loss for that fiscal
year. In addition, during this period, the Company accelerated its store
expansion and repositioning program to increase penetration of its existing
markets (see "Business--Store Development and Expansion Strategy"). These
initiatives provided significant momentum to the Company's operations as
reflected in the first quarter of fiscal 1996, with operating profit increasing
to $6.0 million from $0.4 million during the first quarter of fiscal 1995. See
"Summary Consolidated Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
3
<PAGE>
Several of the Company's key initiatives that have been implemented beginning
in fiscal 1994 are summarized below.
. Commercial Sales Program--The Company formalized and expanded its
marketing efforts to the commercial segment of the automotive
aftermarket, which the Company believes constitutes in excess of 50% of
the approximately $75 billion of annual sales for this market. The
Company increased the number of stores with Commercial Sales Centers
from five at September 30, 1994 to 189 at April 28, 1996. Principally as
a result of this expansion, the Company's sales to commercial accounts
(including sales by stores without Commercial Sales Centers) grew to
$60.8 million in fiscal 1995 from $32.6 million in fiscal 1994 and to
$20.3 million in the first quarter of fiscal 1996 from $12.4 million in
the first quarter of fiscal 1995. The Company's Commercial Sales Program
became profitable in the first quarter of fiscal 1996. Based on the
success of this program, the Company expects to continue to assess
opportunities to add Commercial Sales Centers to its existing and new
stores.
. Customer Service Culture--The Company increased its focus on formal
classroom training and on-the-job training, customer service measurement
systems and incentive programs for its district managers, store
managers, sales associates and other employees in order to encourage
development of technical expertise and customer service skills. To
further encourage superior performance by its employees, the Company has
recently adopted a variety of stock based plans, pursuant to which more
than 1,000 employees have been granted stock options. The Company
believes these programs have resulted in an increased level of customer
service and store-level efficiency.
. Warehouse and Distribution--The Company completed the conversion of its
warehouse and distribution facilities from a manual, labor intensive,
paper-based system to a technologically advanced, fully integrated
system, which has reduced warehouse and distribution costs while
providing the Company with sufficient capacity to meet the requirements
of its growth plans for the foreseeable future. This new system became
fully operational during the fourth quarter of fiscal 1995.
. Store-Based Information Systems--The Company installed a new Point-of-
Sale system ("POS"), integrated the POS with the Company's Electronics
Parts Catalog, implemented its Retail Paperless Management System and
installed a store-wide satellite communications network. Each of these
systems developments has improved store labor productivity and enhanced
customer service.
. Priority Parts--The Company expanded its Priority Parts operation by
improving its delivery system and adding seven strategically located
parts depots to its two existing locations. This expansion has enabled
the Company to better serve its customers by making available to more
than 400 of its stores, on a same day delivery basis, an additional
200,000 stock keeping units not regularly stocked in its stores and has
also enabled it to increase sales to commercial accounts due to the
broader availability of automotive hard parts. Prior to this expansion,
this same day delivery service was available to only 80 of the Company's
stores. The Company believes that its Priority Parts operation provides
it with an important competitive advantage.
. Call Center--The Company completed the installation of a centralized
Call Center that handles the overflow of customer calls during the
stores' busiest hours of operation. Use of the Call Center allows sales
associates to give undivided attention to customers at the store, while
customers who call the store are serviced directly by Call Center
operators who are dedicated to such callers. As a result, the Call
Center has enhanced customer service while improving store labor
productivity. At April 28, 1996, over 200 of the Company's stores had
access to the Call Center and additional stores will continue to be
added.
. Store Expansion and Repositioning--The Company has accelerated the
relocation of smaller stores to larger stores at better locations, the
expansion of certain other stores and the opening of new stores
primarily in existing markets. During fiscal 1995, the Company opened a
total of 54 new stores (of which 30 resulted from relocations of
existing stores) and expanded 9 stores.
4
<PAGE>
The focus of the Company's expansion strategy is to open, relocate or expand
stores primarily in existing markets in order to further increase its name
recognition and market penetration while benefiting from economies of scale in
advertising, management and distribution costs. The Company plans to open,
relocate or expand approximately 75 stores in fiscal 1996 (compared to 63
stores in fiscal 1995) and approximately 100 to 125 stores in fiscal 1997. The
Company opened, relocated or expanded 11 stores during the first quarter of
fiscal 1996, currently has executed purchase contracts or leases for 64
additional stores and is in various stages of negotiation for 60 more sites.
The Company has also identified numerous potential additional sites for future
expansion.
The Company believes that its recent financial performance demonstrates the
effectiveness of the Company's investments in its corporate infrastructure and
store-based information systems, its focus on commercial customers and its
store repositioning program. The Company believes these initiatives have
positioned it for future growth in sales and profitability. During the first
quarter of fiscal 1996, the Company's total sales and comparable store sales
increased 10% and 7%, respectively, over the comparable period in fiscal 1995,
while its operating profit improved to $6.0 million from $0.4 million and net
income increased to $1.5 million from a net loss of $1.8 million.
The Company's executive offices are located at 645 E. Missouri Avenue,
Phoenix, Arizona 85012 and its telephone number is (602) 265-9200.
5
<PAGE>
THE OFFERING
Common Stock offered................ 6,700,000 shares of Common Stock
Common Stock to be outstanding
after the Offering................. 37,021,700 shares of Common Stock(1)
Use of proceeds..................... The net proceeds from the Offering
(approximately $92.5 million) will be
used to repay indebtedness incurred
under the Company's existing credit
agreement. See "Use of Proceeds."
Proposed NYSE symbol...........
- --------
(1) Excludes options to purchase 3,584,052 shares of Common Stock granted to
certain officers, a former officer, directors and certain employees of the
Company at an exercise price of $12.75 per share, of which options to
purchase 2,118,000 shares of Common Stock are currently exercisable. Also
excludes an additional 1,265,948 shares of Common Stock reserved for
issuance pursuant to employee benefit plans, which, if issued, will be
subject to certain restrictions included in such plans. See "Management--
Stock Based Plans."
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated statement of operations,
balance sheet and operating data of the Company. The summary financial data for
each of the three fiscal years during the period ended January 28, 1996 are
derived from the Consolidated Financial Statements of the Company, which have
been audited by Price Waterhouse LLP, independent accountants, and appear
elsewhere herein. The summary financial data for the thirteen weeks ended April
30, 1995 and April 28, 1996 have been derived from the Company's unaudited
consolidated financial statements and include, in the opinion of the Company's
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the data for such periods. The results for the
thirteen weeks ended April 28, 1996 are not necessarily indicative of the
results to be expected for the fiscal year ending February 2, 1997 or for any
future period. The data presented below should be read in conjunction with the
Consolidated Financial Statements, including the related Notes thereto, the
other financial information included herein, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "The Merger."
<TABLE>
<CAPTION>
PRO FORMA(2)
--------------------------------
THIRTEEN WEEKS FISCAL YEAR THIRTEEN WEEKS
FISCAL YEAR ENDED(1) ENDED ENDED ENDED
---------------------------- -------------------- ----------- --------------------
JAN. 30, JAN. 29, JAN. 28, APRIL 30, APRIL 28, JAN. 28, APRIL 30, APRIL 28,
1994 1995(3) 1996(4) 1995 1996 1996 1995 1996
-------- -------- -------- --------- --------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND PER SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $645,426 $688,135 $718,352 $172,301 $189,185 $718,352 $172,301 $189,185
Cost of sales.......... 397,565 410,358 433,817 103,712 113,709 433,817 103,712 113,709
Operating and
administrative
expenses.............. 237,311 258,600 284,697 68,199 69,450 284,697 68,199 69,450
-------- -------- -------- -------- -------- -------- -------- --------
Operating profit
(loss)................ 10,550 19,177 (162) 390 6,026 (162) 390 6,026
Interest expense....... 11,731 10,343 14,379 3,270 3,595 4,997 1,287 1,220
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes and
extraordinary gain.... (1,181) 8,834 (14,541) (2,880) 2,431 (5,159) (897) 4,806
Income (loss) before
extraordinary gain.... (650) 8,038 (9,094) (1,798) 1,499 (3,173) (547) 2,947
Extraordinary gain..... -- 97,186 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ (650) $105,224 $ (9,094) $ (1,798) $ 1,499 $ (3,173) $ (547) $ 2,947
======== ======== ======== ======== ======== ======== ======== ========
Per share amounts:
Net income (loss) per
common share before
extraordinary gain.... $ (0.02) $ 0.26 $ (0.29) $ (0.06) $ 0.05 -- -- --
Extraordinary gain..... -- 3.15 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) per
share................. $ (0.02) $ 3.41 $ (0.29) $ (0.06) $ 0.05 -- -- --
======== ======== ======== ======== ======== ======== ======== ========
Pro forma net income
(loss) per share...... -- -- -- -- -- $ (0.08) $ (0.01) $ 0.08
======== ======== ========
Weighted-average common
and common equivalent
shares outstanding (in
thousands)............ 30,860 30,860 30,860 30,860 30,860 37,457 37,299 37,580
======== ======== ======== ======== ======== ======== ======== ========
SELECTED ADDITIONAL
OPERATING DATA:
Warehouse and
distribution
expense(5)............ $ 25,599 $ 29,827 $ 34,860 $ 7,676 $ 7,424 -- -- --
Occupancy expense(6)... 29,286 32,232 35,357 8,406 9,405 -- -- --
Depreciation and
amortization expense.. 12,176 13,105 16,261 3,412 4,885 -- -- --
Average net sales per
store(7).............. 1,215 1,272 1,294 314 333 -- -- --
Average net sales per
store square foot(7).. 223 226 224 55 56 -- -- --
Percentage increase in
comparable store net
sales(8).............. 9.9% 5.2% 2.1% 2.9% 7.3% -- -- --
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
THIRTEEN WEEKS
FISCAL YEAR ENDED(1) ENDED
------------------------- -------------------
JAN. 30, JAN. 29 JAN. 28, APRIL 30, APRIL 28,
1994 1995(3) 1996 1995 1996
-------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
SELECTED STORE DATA:
Beginning Stores................ 524 538 544 544 566
New Stores...................... 15 10 24 10 3
Relocated Stores................ 25 12 30 5 6
Closed Stores (including
relocated stores).............. (26) (16) (32) (5) (6)
----- ----- ----- ----- -----
Ending Stores................... 538 544 566 554 569
===== ===== ===== ===== =====
Expanded Stores................. 13 5 9 2 2
Stores with Commercial Sales
Centers........................ 5 59 176 183 189
Total store square footage (at
period end)(000s)(7)........... 2,992 3,097 3,329 3,161 3,377
</TABLE>
<TABLE>
<CAPTION>
AT APRIL 28, 1996
-----------------------------
ACTUAL AS ADJUSTED(9)
------------ ----------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $ 82,052 $ 82,158
Total assets..................................... 398,949 395,506
Long-term debt:
Credit Agreement................................. 92,671 --
Capital leases................................... 18,941 18,941
Stockholder's equity(10)......................... 61,496 153,740
</TABLE>
- --------
(1) The Company's fiscal year consists of 52 or 53 weeks ending on the Sunday
nearest to January 31. All fiscal years presented are 52 weeks.
(2) The Pro Forma statement of operations and net income per common share data
give effect to the completion of the Offering and the application of the
estimated net proceeds therefrom as if the same had occurred at the
beginning of the periods indicated.
(3) The extraordinary gain represents a gain resulting from cancellation of a
portion of the Company's long-term debt. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes 4 and
9 to Consolidated Financial Statements.
(4) Includes in cost of sales pre-opening expenses of $1.6 million associated
with the opening of the new distribution center in Phoenix, Arizona.
Includes in operating and administrative expenses $5.3 million of non-
recurring software development costs and $1.8 million of depreciation and
amortization expense relating to equipment associated with the new store-
based information systems. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(5) Warehouse and distribution expense is included in cost of sales.
(6) Occupancy expense is included in operating and administrative expenses.
(7) Total store square footage is based on the Company's actual store formats
and includes normal selling, office, stockroom and receiving space.
Average net sales per store and average net sales per store square foot
are based on the average of beginning and ending number of stores and
store square footage and are not weighted to take into consideration the
actual dates of store openings, closings or expansions.
(8) Comparable store net sales data is calculated based on the change in net
sales commencing after the time a new store has been opened twelve months.
The first twelve months during which a new store is open are not included
in the comparable store calculation. Relocations are included in
comparable store net sales from the date of opening.
(9) Gives effect to the sale of 6,700,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $15.00 per share and
the application of the estimated net proceeds therefrom and includes an
aggregate of 21,700 shares of Common Stock issued to certain executive
officers of the Company at a price of $12.75 per share. See "Use of
Proceeds," and "Capitalization" and "The Merger."
(10) Excludes the effect of equity participation agreements under which certain
current officers and a former officer of the Company have been granted
participation interests equal in the aggregate to 6.4% of the Common Stock
held by CSK Holdings, Ltd. immediately prior to the Offering. Pursuant to
these agreements, these individuals are entitled to a cash payment by the
Company equal to the product of their vested participation interest and
the consideration received (up to a maximum of $12.75 per equity
participation share equivalent) in respect of one or more of the
following: (i) a sale of substantially all of the assets of the Company;
(ii) the merger of the Company; and (iii) the sale of Common Stock by CSK
Holdings, Ltd. (in which case the payment will be adjusted based upon the
percentage of such stockholder's holdings being sold). See "Management--
Equity Participation Agreements."
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be carefully considered in evaluating the Company and its
business before purchasing the Common Stock offered hereby.
UNCERTAINTY OF GROWTH STRATEGY
The Company's expansion strategy is based, in part, on expanding successful
stores at existing locations, relocating existing stores in the same markets
and adding new stores primarily to markets currently served by the Company.
The future growth and financial performance of the Company is, therefore,
dependent upon a number of factors, including the Company's ability to locate
and obtain acceptable store sites, negotiate favorable lease terms, complete
the construction of new and relocated stores in a timely manner, hire, train
and retain competent managers and associates, and integrate new stores into
the Company's systems and operations. There can be no assurance that the
Company will be able to continue to increase sales in existing stores or that
opening new stores in markets already served by the Company will not adversely
affect existing store profitability or comparable store sales. There also can
be no assurance that the Company will be able to manage its growth
effectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Business--
Store Development and Expansion Strategy."
COMPETITION
The retail sale of automotive parts and accessories is highly competitive.
The Company competes primarily with national and regional retail automotive
parts chains, wholesalers or jobber stores (some of which are associated with
national automotive parts distributors or associations), automobile dealers
that supply manufacturer parts and mass merchandisers that carry automotive
replacement parts and accessories. Some of the Company's competitors are
larger and have greater financial resources than the Company. See "Business--
Competition."
DEPENDENCE ON VENDOR RELATIONSHIPS
The Company's business is dependent upon developing and maintaining close
relationships with its vendors and its ability to purchase products from these
vendors on favorable price and other terms, including obtaining financial
incentives, such as cooperative advertising arrangements and other marketing
incentive programs, and non-financial benefits such as improved packaging and
distribution accommodations. A disruption of these vendor relationships, or a
material reduction in any of these advertising, incentive or other programs,
could materially adversely affect the Company's business. The Company believes
that alternative sources of supply could be obtained for all of its products,
if necessary, on generally comparable terms. See "Business--Purchasing."
DEPENDENCE ON EXECUTIVE OFFICERS
The Company is dependent, in large part, on its ability to retain the
services of its executive officers. While the Company believes that it has
assembled an effective management team, the loss of a number of its executive
officers could have an adverse impact on the Company. The Company's continued
success will also be dependent upon its ability to retain existing and attract
additional qualified personnel to meet the Company's needs. See "Management--
Directors and Executive Officers."
ECONOMIC AND WEATHER CONDITIONS; REGIONAL CONCENTRATION
All of the Company's stores are located in the Western United States. As a
result, the Company's business is sensitive to the economic and weather
conditions of that region. In recent years, certain parts of that region have
experienced economic recessions and extreme weather conditions. Temperature
extremes tend to enhance
9
<PAGE>
sales by causing a higher incidence of parts failure and increasing sales of
seasonal products. However, unusually severe weather can reduce sales by
causing deferral of elective maintenance. No prediction can be made as to
future economic or weather conditions in the regions in which the Company
operates.
UNCERTAINTY AS TO FUTURE CREDIT FACILITY AND TERMS
The net proceeds from the Offering will be used to repay amounts outstanding
under the Company's existing credit agreement and any remaining amounts
outstanding will be repaid from existing cash balances. Although the Company
will terminate its existing credit agreement upon completion of the Offering
and anticipates that the availability of sale-leaseback financing and
internally generated funds will be sufficient to finance its expansion plans
for the forseeable future, it intends to obtain a new credit facility to fund,
in part, its expansion and working capital requirements, including payments to
its vendors. During fiscal 1995, the Company defaulted in its compliance with
certain then existing financial covenants in its existing credit agreement
related to earnings and balance sheet ratios, which defaults the lenders
waived in connection with their agreement to modify such covenants in a manner
that resulted in compliance by the Company for the periods completed and
facilitated continued compliance in subsequent periods. Although there can be
no assurance, upon completion of the Offering the Company expects its improved
capital structure will enable it to secure a new credit facility on
substantially better terms than are contained in its existing credit
agreement.
CONTROL BY PRINCIPAL STOCKHOLDER
Upon completion of the Offering, CSK Holdings, Ltd. ("Holdings"), a holding
company, the only asset of which is the Common Stock of the Company, will own
directly or indirectly approximately 81.8% of the Company's Common Stock.
Holdings is, in turn, wholly-owned by the Carmel Trust ("Carmel"), as more
fully described under "Principal Stockholders." As a result, Carmel, through
Holdings, can control the management and policies of the Company, and will
have, without limitation, the power to elect or remove the Company's Board of
Directors. Carmel also may exercise control over the business, policies and
affairs of the Company, may determine (without the consent of the Company's
other stockholders) the outcome of any matter submitted to the stockholders
for approval, including any merger, consolidation or sale of all or
substantially all of the Company's assets, and may prevent or cause a change
in control of the Company. In addition, the Company's executive officers and
directors would own approximately 5.7% of the Company's Common Stock (and
together with Holdings approximately 82.9% of such stock) after the Offering
on a fully-diluted basis, after giving effect to the exercise of all
outstanding options held by such officers and directors. An additional
1,265,948 shares of Common Stock are reserved for issuance pursuant to various
Company stock purchase and option plans, a portion of which may ultimately be
purchased by, and/or granted to, such officers and directors, thereby further
increasing the aggregate ownership interest of such persons. See "Principal
Stockholders" and "Description of Capital Stock."
POTENTIAL CONFLICTS OF INTEREST
Certain officers and directors of the Company are also officers or directors
of Holdings and its affiliates and, consequently, may have conflicts of
interest in addressing business opportunities that may arise between the
Company and such entities. The Company does not intend to enter into any
material transactions with Holdings or its affiliates in the future unless
such transactions are at least as favorable as could be obtained from third
parties. The Company intends to resolve any potential conflicts of interest on
a case by case basis, taking into consideration relevant factors, including
the requirements of the NYSE and prevailing corporate practices. See
"Management" and "Certain Transactions."
POTENTIAL ANTI-TAKEOVER EFFECT OF PREFERRED STOCK ISSUANCES
The Company's Certificate of Incorporation authorizes the issuance of 10
million shares of "blank check" preferred stock (the "Preferred Stock") with
such designations, rights and preferences as may be determined
10
<PAGE>
from time to time by the Company's Board of Directors. Accordingly, the
Company's Board of Directors is empowered, without further stockholder
approval, to issue Preferred Stock with voting, dividend, liquidation,
conversion or other rights that could adversely affect the rights of the
holders of Common Stock. The issuance of Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could also be utilized, under certain circumstances, as a method of
delaying, deferring or preventing a change in control of the Company. Although
the Company has no current plans to issue any shares of Preferred Stock, there
can be no assurance that the Company's Board of Directors will not determine
to do so in the future.
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or the availability of such shares for future sale will
have on the market price of the Common Stock prevailing from time to time.
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock. Upon consummation of the Offering, only
the 6,700,000 shares of Common Stock sold pursuant to the Offering will be
freely tradeable under the Securities Act, unless and to the extent purchased
by "affiliates" of the Company, as that term is defined in Rule 144
promulgated under the Securities Act (sales by whom would be subject to
certain volume limitations and other restrictions). All of the remaining
shares of Common Stock are subject to an agreement with the Underwriters
pursuant to which the holders have each agreed not to sell or dispose of any
such shares for a period of 180 days from the date of this Prospectus. Upon
the expiration of such 180-day period, such shares will continue to be
"restricted" securities, which may be sold in the public market only pursuant
to an effective registration statement under the Securities Act or an
exemption therefrom. See "Shares Eligible For Future Sale" and "Underwriting."
DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. The purchasers of the Common
Stock offered hereby will experience immediate and substantial dilution in net
tangible book value per share of Common Stock from the initial public offering
price. See "Dilution."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK AND POSSIBLE VOLATILITY OF STOCK PRICE
There has been no public market for the Common Stock prior to the Offering.
Although application has been made to list the Common Stock on the NYSE, there
can be no assurance that an active public market for the Common Stock will
develop or be sustained. The price of the Common Stock offered hereby has been
determined through negotiation between the Company and the Underwriters and
may not necessarily reflect the market price of the Common Stock after the
Offering. See "Underwriting." Additionally, the market price of the Common
Stock could be subject to significant fluctuations and trade below the initial
public offering price in response to variations in quarterly operating
results, general trends in the retail automotive aftermarket parts industry, a
decrease in stock prices generally and other factors.
11
<PAGE>
USE OF PROCEEDS
Based on an assumed initial public offering price of $15.00 per share, the
Company will receive approximately $92.5 million from the sale of the
6,700,000 shares of Common Stock offered hereby (approximately $106.5 million
if the Underwriters' over-allotment option is exercised in full) after
deducting the underwriting discount and estimated expenses payable by the
Company in connection with the Offering. The Company intends to use the net
proceeds from the Offering to partially repay certain indebtedness plus
accrued interest thereon incurred under the Credit Agreement referred to
below. Any balance remaining unpaid under the Credit Agreement after giving
effect to such use of the net proceeds will be repaid upon completion of the
Offering from existing cash balances and the Credit Agreement will be
terminated. Upon the completion of the Offering, the Company intends to obtain
a new credit facility that will be available to fund, in part, its expansion
and working capital requirements, including payments to its vendors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The indebtedness to be repaid is secured and consists (as of April 28, 1996)
of a term loan in the principal amount outstanding of $2.7 million and a
revolving credit loan in the principal amount outstanding of $91.0 million,
plus accrued interest, under the Company's existing credit agreement entered
into in February 1995 with a group of lending institutions for which
Transamerica Business Credit Corporation acts as agent (the "Credit
Agreement"). The principal outstanding under the Credit Agreement bears
interest at LIBOR plus 3.0% with an option to use the prime rate plus 1.0%. As
of April 28, 1996, the average interest rate under the Credit Agreement was
8.56%. The term loan and revolving credit loan under the Credit Agreement
mature on February 15, 1997, subject to certain rights that the Company has to
extend the term for up to four additional one-year terms if the conditions
specified for such extensions are then satisfied.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock and currently
intends to retain all earnings for working capital to support growth and for
general corporate purposes. The Company, therefore, does not anticipate paying
any dividends in the foreseeable future.
12
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of April 28, 1996, after giving effect to the Merger, and as
adjusted to reflect (i) the sale by the Company of the 6,700,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$15.00 per share and the application of the estimated net proceeds therefrom
to repay a portion of the Company's outstanding debt under the Credit
Agreement and (ii) the issuance of 21,700 shares of Common Stock to certain
executive officers of the Company at a price of $12.75 per share. See "Use of
Proceeds" and "The Merger." The Company intends to apply a portion of its
existing cash balance to repay the remaining balance, if any, under the Credit
Agreement.
<TABLE>
<CAPTION>
AS OF APRIL 28, 1996
---------------------------
AS
ACTUAL ADJUSTED
------------ -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Cash and cash equivalents.......................... $ 4,708 $ 1,798
============ ============
Current portion of long-term debt.................. $ 1,000 --
============ ============
Long-term debt:
Credit Agreement................................. $ 92,671 --
Capital leases................................... 18,941 $ 18,941
Stockholders' equity:
Preferred Stock, $.001 par value, 10,000,000
shares authorized, no shares issued and
outstanding..................................... -- --
Common Stock, $.001 par value, 75,000,000 shares
authorized, 30,300,000 shares issued and
outstanding, actual; 37,021,700 shares
issued and outstanding, as adjusted(1).......... 30 37
Additional paid-in capital--
Common Stock................................... 87,093 179,863
Accumulated deficit.............................. (25,627) (26,160)
------------ ------------
Total stockholders' equity..................... 61,496 153,740
------------ ------------
Total capitalization......................... $ 173,108 $ 172,681
============ ============
</TABLE>
- --------
(1) Excludes options to purchase 3,584,052 shares of Common Stock granted to
certain current and former officers and directors and certain employees of
the Company at an exercise price of $12.75 per share, of which options to
purchase 2,118,000 shares of Common Stock are currently exercisable. Based
upon the difference between the exercise price of such options and an
assumed initial public offering price of $15.00 per share, such options
have a current aggregate value of approximately $8.1 million. Also
excludes 1,265,948 shares of Common Stock reserved for issuance pursuant
to employee benefit plans, which, if issued, will be subject to certain
restrictions included in such plans. Also excludes the effect of equity
participation agreements under which certain current officers and a former
officer of the Company have been granted a participation interest equal in
the aggregate to 6.4% of the Common Stock held by CSK Holdings, Ltd.
immediately prior to the Offering. Pursuant to these agreements, these
individuals are entitled to a cash payment by the Company equal to the
product of their vested participation interest and the consideration
received (up to a maximum of $12.75 per equity participation share
equivalent) in respect of one or more of the following: (i) a sale of
substantially all of the assets of the Company; (ii) the merger of the
Company; and (iii) the sale of Common Stock by CSK Holdings, Ltd., or of
the stock of CSK Holdings, Ltd. or any direct or indirect parent of CSK
Holdings, Ltd. by its respective direct or indirect parent, in which case
the payment will be adjusted based upon the percentage of such
stockholder's holdings being sold. See "Management--Stock Based Plans and
Equity Participation Agreements."
13
<PAGE>
DILUTION
The net tangible book value available to holders of Common Stock (tangible
assets less liabilities) of the Company at April 28, 1996, after giving effect
to the Merger and the issuance of 21,700 shares of Common Stock to certain
executive officers of the Company at a price of $12.75 per share, was
approximately $46.9 million or $1.55 per share of Common Stock. After giving
effect to the sale of 6,700,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $15.00 per share and the application
of the net proceeds therefrom (after deducting the underwriting discount and
the estimated expenses of the Offering), the adjusted net tangible book value
of the Company at April 28, 1996 would have been $139.4 million or $3.77 per
share of Common Stock. This represents an immediate increase in net tangible
book value of $2.22 per share to the existing stockholders and an immediate
dilution of $11.23 per share to new investors purchasing shares of Common
Stock offered hereby. The following table illustrates the per share dilution
to new investors:
<TABLE>
<S> <C> <C>
Assumed initial offering price per share................... $15.00
Adjusted net tangible book value per share after giving
effect to the Merger...................................... $1.55
Increase per share attributable to new investors........... 2.22
=====
Pro forma net tangible book value per share after the
Offering.................................................. 3.77(2)
------
Dilution per share to new investors(1)..................... $11.23(2)
======
</TABLE>
- --------
(1) Dilution is determined by subtracting pro forma net tangible book value
per share after the Offering from the amount of cash paid by a new
investor for a share of Common Stock.
(2) Does not give effect to outstanding options to purchase 3,584,052 shares
of Common Stock, pursuant to the Company's Employee Stock Option Plan, of
which options to purchase 2,118,000 shares of Common Stock are currently
exercisable. See "Management--Stock Based Plans--Employee Stock Option
Plan."
The following table summarizes, on a pro forma basis as of April 28, 1996
(after giving effect to the assumed exercise of currently exercisable
outstanding options to purchase 1,916,000 shares of Common Stock and payment
therefore), the total consideration paid and the average price per share paid
by officers and directors with respect to shares of Common Stock purchased
from the Company in the last five years and by investors purchasing the shares
in the Offering at an assumed initial public offering price of $15.00 per
share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Officers and directors........ 1,937,700 22.4% $ 24,705,675 19.7% $12.75
New investors................. 6,700,000 77.6% 100,500,000 80.3% $15.00
</TABLE>
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated statement of
operations, balance sheet and operating data of the Company. The selected
statement of operations and balance sheet data for each of the five fiscal
years during the period ended January 28, 1996 are derived from the financial
statements of the Company, which have been audited by Price Waterhouse LLP,
independent accountants, and which in the case of the three most recent fiscal
years appear elsewhere herein. The selected financial data for the thirteen
weeks ended April 30, 1995 and April 28, 1996 have been derived from the
Company's unaudited Consolidated Financial Statements and include, in the
opinion of the Company's management, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the data for such
periods. The results for the thirteen weeks ended April 28, 1996 are not
necessarily indicative of the results to be expected for the fiscal year
ending February 2, 1997 or for any future period. The data presented below
should be read in conjunction with the Consolidated Financial Statements,
including the related Notes thereto included herein, the other financial
information included herein, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "The Merger."
<TABLE>
<CAPTION>
THIRTEEN WEEKS
FISCAL YEAR ENDED (1) ENDED
------------------------------------------------- --------------------
FEB. 2, JAN. 31, JAN. 30, JAN. 29, JAN. 28, APRIL 30, APRIL 28,
1992(2) 1993 1994 1995(3) 1996(4) 1995 1996
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND PER SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $523,455 $588,984 $645,426 $688,135 $718,352 $172,301 $189,185
Cost of sales.......... 318,431 363,514 397,565 410,358 433,817 103,712 113,709
Operating and
administrative
expenses.............. 240,703 212,496 237,311 258,600 284,697 68,199 69,450
-------- -------- -------- -------- -------- -------- --------
Operating profit
(loss)................ (35,679) 12,974 10,550 19,177 (162) 390 6,026
Interest expense....... 22,004 12,362 11,731 10,343 14,379 3,270 3,595
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes and
extraordinary gain.... (57,683) 612 (1,181) 8,834 (14,541) (2,880) 2,431
Income tax expense
(benefit)............. -- -- (531) 796 (5,447) (1,082) 932
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary gain.... (57,683) 612 (650) 8,038 (9,094) (1,798) 1,499
Extraordinary gain..... -- -- -- 97,186 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $(57,683) $ 612 $ (650) $105,224 $ (9,094) $ (1,798) $ 1,499
======== ======== ======== ======== ======== ======== ========
Per share amounts:
Income (loss) before
extraordinary gain.... $ (1.87) $ 0.02 $ (0.02) $ 0.26 $ (0.29) $ (0.06) $ 0.05
Extraordinary gain..... -- -- -- 3.15 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ (1.87) $ 0.02 $ (0.02) $ 3.41 $ (0.29) $ (0.06) $ 0.05
======== ======== ======== ======== ======== ======== ========
Weighted average common
and common equivalent
shares outstanding (in
thousands)............ 30,860 30,860 30,860 30,860 30,860 30,860 30,860
======== ======== ======== ======== ======== ======== ========
SELECTED ADDITIONAL
OPERATING DATA:
Warehouse and
distribution
expense(5)............ $ 24,248 $ 24,160 $ 25,599 $ 29,827 $ 34,860 $ 7,676 $ 7,424
Occupancy expense(6)... 27,965 27,902 29,286 32,232 35,357 8,406 9,405
Depreciation and
amortization expense.. 13,808 13,372 12,176 13,105 16,261 3,412 4,885
Total store square
footage (at period
end)(7)............... 2,906 2,789 2,992 3,097 3,329 3,161 3,377
Average net sales per
store(7).............. $ 946 $ 1,098 $ 1,215 $ 1,272 $ 1,294 $ 314 $ 333
Average net sales per
store square foot(7).. 182 207 223 226 224 55 56
Percentage increase
(decrease) in
comparable store net
sales(8).............. (9.2%) 14.3% 9.9% 5.2% 2.1% 2.9% 7.3%
<CAPTION>
THIRTEEN WEEKS
FISCAL YEAR ENDED ENDED
------------------------------------------------- --------------------
FEB. 2, JAN. 31, JAN. 30, JAN. 29, JAN. 28, APRIL 30, APRIL 28,
1992 1993 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $ 72,282 $ 77,528 $ 78,003 $ 77,627 $ 81,048 $ 84,543 $ 82,052
Total assets........... 264,721 275,782 294,806 350,830 391,319 371,600 398,949
Current liabilities.... 114,135 124,688 140,115 174,924 203,754 181,427 214,621
Long-term debt:
Credit Agreement....... 169,611 173,749 177,492 78,284 95,062 92,594 92,671
Capital leases......... 8,714 9,148 7,384 20,832 20,453 22,195 18,941
Stockholder's equity
(deficit)(9).......... (45,240) (44,626) (41,576) 64,376 59,997 62,578 61,496
</TABLE>
15
<PAGE>
- --------
(1) The Company's fiscal year consists of 52 or 53 weeks ending on the Sunday
nearest to January 31. All fiscal years presented are 52 weeks.
(2) Includes non-recurring operating and administrative expenses for the
write-off of excess of cost over net assets acquired in the amount of
$31.8 million. Also includes provision for closed stores in the amount of
$8.2 million.
(3) The extraordinary gain represents a gain resulting from cancellation of a
portion of the Company's long-term debt. See "Management's Discussion and
Analysis of Financial and Results of Operations" and Notes 4 and 9 to
Consolidated Financial Statements.
(4) Includes in cost of sales pre-opening expenses of $1.6 million associated
with the opening of the new distribution center in Phoenix, Arizona.
Includes in operating and administrative expenses $5.3 million of non-
recurring software development costs and $1.5 million of depreciation and
amortization expense relating to equipment associated with the new store-
based information systems. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(5) Warehouse and distribution expense is included in cost of sales.
(6) Occupancy expense is included in operating and administrative expenses.
(7) Total store square footage is based on the Company's actual store formats
which include normal selling, office, stockroom and receiving space.
Average net sales per store and average net sales per store square foot
are based on the average of beginning and ending number of stores and
store square footage and are not weighted to take into consideration the
actual dates of store openings, closings or expansions.
(8) Comparable store net sales data is calculated based on the change in net
sales commencing after the time a new store has been opened twelve months.
The first twelve months a new store is open are not included in the
comparable store calculation. Relocations are included in comparable store
net sales from the date of opening.
(9) Excludes the effect of equity participation agreements under which certain
current officers and a former officer of the Company have been granted
participation interests equal in the aggregate to 6.4% of the Common Stock
held by CSK Holdings, Ltd. immediately prior to the Offering. Pursuant to
these agreements, these individuals are entitled to a cash payment by the
Company equal to the product of their vested participation interest and
the consideration received (up to a maximum of $12.75 per equity
participation share equivalent) in respect of one or more of the
following: (i) a sale of substantially all of the assets of the Company;
(ii) the merger of the Company; and (iii) the sale of Common Stock by the
CSK Holding, Ltd. (in which case the payment will be adjusted based upon
the percentage of such stockholder's holdings being sold). See
"Management--Equity Participation Agreements."
16
<PAGE>
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 the Consolidated Financial
Statements of the Company, the Notes thereto and other data and information
appearing elsewhere in this Prospectus. The Company's fiscal year ends on the
Sunday nearest January 31. As used in this section, fiscal 1995 represents the
52 weeks ended January 28, 1996; fiscal 1994 represents the 52 weeks ended
January 29, 1995; fiscal 1993 represents the 52 weeks ended January 30, 1994;
fiscal 1992 represents the 52 weeks ended January 31, 1993; and fiscal 1991
represents the 52 weeks ended February 2, 1992.
GENERAL
The Company is the largest retailer of automotive parts and accessories in
the Western United States and one of the largest such retailers in the United
States. As of April 28, 1996, the Company operated 569 stores as a fully
integrated chain under three tradenames, each of which at one time represented
a separate retail chain: Checker Auto Parts, founded in 1968 and operating in
the Southwestern and Rocky Mountain states; Schuck's Auto Supply, founded in
1917 and operating in the Pacific Northwest; and Kragen Auto Parts, founded in
1947 and operating primarily in California. In December 1986, the Checker Auto
Parts and Kragen Auto Parts chains were acquired from Lucky Stores and merged
in 1987 with Schuck's to form the Company.
From the formation of the Company in 1987 through fiscal 1994, the Company's
results of operations were adversely impacted by a high degree of financial
leverage. As a result, during fiscal 1991, the Company engaged in protracted
negotiations with its then bank lenders because of the potential of a default
under its then existing credit agreement. This, in turn, resulted in the
restriction of shipments by certain of the Company's vendors. These vendor
restrictions resulted in the fill-rate (the percentage of weekly store orders
filled by the Company's warehouses that week) to stores falling from a
targeted level of 90% to as low as 50% during portions of fiscal 1991. These
developments caused further erosion of the Company's results of operations and
liquidity, culminating in a restructuring of the Company's then existing
credit agreement in fiscal 1992 and in the cancellation of indebtedness of
$97.2 million in fiscal 1994. The resulting reduction in financial leverage
enabled the Company, in fiscal 1995, to refinance its remaining bank
indebtedness with proceeds from the Credit Agreement. See Notes 4 and 9 to
Consolidated Financial Statements.
In order to improve the efficiency of its operations, enhance customer
service and position the Company for future growth, the Company began in
fiscal 1994 to implement a sophisticated, centralized infrastructure and to
install various store-based information systems. At the same time, the Company
initiated its Commercial Sales Program. Implementation of these strategies
involved capital expenditures (including capital leases) of approximately
$30.1 million during fiscal 1994 and 1995 and operating costs of approximately
$15.5 million during fiscal 1995, which contributed to a net loss for that
fiscal year. In addition, during this period, the Company accelerated its
store expansion and repositioning program to increase penetration of its
existing markets. These initiatives provided significant momentum to the
Company's operations as reflected in the first quarter of fiscal 1996, with
operating profit increasing to $6.0 million from $0.4 million during the first
quarter of fiscal 1995.
The Company intends to use the net proceeds of the Offering, together with
available cash, to repay the indebtedness outstanding, plus accrued interest
thereon, under its Credit Agreement. In addition, upon completion of the
Offering, the Company intends to terminate the Credit Agreement and to obtain
a new revolving credit facility to fund, in part, its continued expansion and
working capital requirements including payments to its vendors. Furthermore,
due to the deleveraging resulting from the Offering, the Company believes that
it will realize more favorable pricing and terms from its existing vendors, as
well as attract new vendors. The Company also believes that the deleveraging
and increased liquidity will enable the Company to, among other things,
capitalize on cash discounts that are currently offered by its vendors, but
that the Company has not been able to utilize historically due to cash
constraints.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data for the
Company expressed as a percentage of net sales for the fiscal years and
periods indicated.
<TABLE>
<CAPTION>
THIRTEEN WEEKS
FISCAL YEAR ENDED ENDED
--------------------------- -------------------
JAN. 30, JAN. 29, JAN. 28, APRIL 30, APRIL 28,
1994 1995 1996 1995 1996
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................ 61.6 59.6 60.4 60.2 60.1
----- ----- ----- ----- -----
Gross profit................. 38.4 40.4 39.6 39.8 39.9
Operating and administrative
expenses.................... 36.8 37.6 39.6 39.6 36.7
----- ----- ----- ----- -----
Operating profit (loss)...... 1.6 2.8 0.0 0.2 3.2
Interest expense............. 1.8 1.5 2.0 1.9 1.9
Income tax expense
(benefit)................... (0.1) 0.1 (0.7) (0.7) 0.5
----- ----- ----- ----- -----
Income before extraordinary
gain........................ (0.1) 1.2 (1.3) (1.0) 0.8
Extraordinary gain........... -- 14.1 -- -- --
----- ----- ----- ----- -----
Net income (loss)............ (0.1)% 15.3% (1.3)% (1.0)% 0.8%
===== ===== ===== ===== =====
</TABLE>
Gross profit consists primarily of net sales less the cost of sales and
warehouse and distribution expenses. Gross profit as a percentage of net sales
may be affected by variations in the Company's product mix, price changes in
response to competitive factors and fluctuations in merchandise costs and
vendor programs.
Operating and administrative expenses are comprised of store payroll, store
occupancy, advertising expenses, other store expenses and general and
administrative expenses, including salaries and related benefits of corporate
employees, administrative office occupancy expenses, data processing,
professional expenses and other related expenses.
Thirteen Weeks Ended April 28, 1996 Compared to Thirteen Weeks Ended April
30, 1995
Net sales for the thirteen weeks ended April 28, 1996 increased by $16.9
million, or 9.8%, over net sales for the comparable period in fiscal 1995.
This increase was due to an increase in comparable store sales of 7.3% ($12.6
million) and an increase in net sales from new stores of $4.3 million. The
Company believes its comparable store sales have benefitted from the
installation of its new store-based information systems, implementation of its
Commercial Sales Program and its expanded Priority Parts operation. Sales to
commercial customers increased to $20.3 million for the thirteen weeks ended
April 28, 1996 from $12.4 million for the thirteen weeks ended April 30, 1995.
During the thirteen weeks ended April 28, 1996, the Company opened three new
stores, relocated six stores to larger facilities and expanded two stores at
existing locations.
Gross profit for the thirteen weeks ended April 28, 1996 was $75.5 million,
or 39.9% of net sales, compared with $68.6 million, or 39.8% of net sales,
during the thirteen weeks ended April 30, 1995. The increase in gross profit
percentage resulted primarily from a decline in warehouse and distribution
costs. Warehouse and distribution costs declined by $0.3 million for the
thirteen weeks ended April 28, 1996 compared to the thirteen weeks ended April
30, 1995 and, as a percentage of net sales, declined to 3.9% from 4.5% due to
efficiencies gained from the Company's new distribution systems, which became
fully operational in the fourth quarter of fiscal 1995 (see "Business--
Warehouse and Distribution"). Gross profit was also favorably impacted during
the thirteen weeks ended April 28, 1996 by an increase in the sales of
automotive hard parts. Sales of automotive hard parts generally result in a
higher gross profit percentage than other product categories. The increase in
gross profit was offset in large part by a higher percentage of commercial
sales during the thirteen weeks ended April 28, 1996, which generally result
in a lower gross profit percentage than retail sales.
Operating and administrative expenses for the thirteen weeks ended April 28,
1996 increased by $1.3 million over such expenses during the thirteen weeks
ended April 30, 1995 and, as a percentage of net sales,
18
<PAGE>
decreased from 39.6% to 36.7%. The decrease in percentage reflects the
Company's ability to leverage its overhead and fixed expenses with higher
sales volume despite an increase of $0.6 million in depreciation and
amortization expense associated with the equipment installed as part of the
investments in store-based information systems. In addition, the percentage
for the thirteen weeks ended April 30, 1995 was higher because of increased
store payroll costs related to the expansion of the Company's Commercial Sales
Centers from 59 stores at January 29, 1995 to 183 stores at April 30, 1995, as
well as the labor cost required to stock the increased number of hard parts
stock keeping units ("SKUs") added to its stores. As a result, store labor as
a percentage of net sales declined to 12.2% from 13.1% during the thirteen
weeks ended April 28, 1996 as compared to the thirteen weeks ended April 30,
1995.
Interest expense for the thirteen weeks ended April 28, 1996 was $3.6
million compared to $3.3 million for the thirteen weeks ended April 30, 1995.
The increase in interest expense was the result of higher average effective
interest rates under the Credit Agreement.
The Company's effective tax rate for the thirteen weeks ended April 28, 1996
was 38.3%. The Company recorded an income tax benefit of $1.1 million for the
thirteen weeks ended April 30, 1995.
As a result of the above factors, net income was $1.5 million for the
thirteen weeks ended April 28, 1996 as compared to a net loss of $1.8 million
for the thirteen weeks ended April 30, 1995.
Fiscal Year Ended January 28, 1996 Compared to Fiscal Year Ended January 29,
1995
Net sales for fiscal 1995 increased by $30.2 million, or 4.4%, over net
sales for fiscal 1994. This increase was due to an increase in net sales from
new stores ($16.1 million) and an increase in comparable store sales of 2.1%
($14.1 million). Comparable stores sales growth was lower than in previous
years primarily because of difficulties relating to hardware and software
installed during the conversion and automation of the Company's two
distribution centers, which caused fill-rates to decline from targeted levels
of approximately 90% to as low as 65% during portions of fiscal 1995. This, in
turn, resulted in stores being out of stock with respect to certain products
during portions of fiscal 1995. The results were further adversely impacted by
weak economic conditions in the Company's California markets. Commercial sales
were $60.8 million in fiscal 1995 compared to $32.6 million in fiscal 1994.
During fiscal 1995, the Company opened 24 new stores and relocated 30 stores,
expanded nine stores at existing locations and closed a total of two stores in
addition to relocations. Fill-rates by year end had improved to
approximately 90%.
Gross profit for fiscal 1995 was $284.5 million, or 39.6% of net sales,
compared with $277.8 million, or 40.4% of net sales, during fiscal 1994. The
decrease in gross profit percentage was due primarily to an increase in
warehouse and distribution costs of 0.5% of net sales resulting from the
additional costs incurred (including $1.6 million of pre-opening expenses)
during the automation of the Company's distribution centers and related
difficulties of such automation. The new distribution facilities became fully
operational in the fourth quarter of fiscal 1995 (see "Business--Warehouse and
Distribution"). In addition, oil promotions run by the Company during fiscal
1995, in an effort to increase customer traffic during a difficult market
period, contributed to the decrease in gross profit as a percentage of net
sales.
Operating and administrative expenses for fiscal 1995 increased by $26.1
million over such expenses for fiscal 1994 and, as a percentage of net sales,
increased from 37.6% to 39.6%. The increase in the expense ratio for fiscal
1995 was primarily attributable to the expenses associated with developing and
implementing the store-based information systems, including the new POS
system, integration of the POS with the Electronic Parts Catalog ("EPC"),
implementation of a Retail Paperless Management System and installation of a
store-wide satellite communications network, in the aggregate amount of $6.8
million of which $5.3 million represents non-recurring software development
costs and $1.5 million represents an increase in depreciation and amortization
expense associated with the equipment installed as part of the investments in
store-based systems. In addition to the direct costs incurred by the Company
to develop and implement these new systems, the Company's store associates
were required to spend a significant amount of time off the sales floor being
trained on the use of these systems, resulting in an increase in store labor
during the period. The Company's out-of-stock position
19
<PAGE>
during periods of fiscal 1995 also contributed to the higher store labor costs
as a percentage of net sales as associates were forced to direct more of their
efforts to outsourcing product. Lastly, during fiscal 1995, the Company
expanded its Commercial Sales Centers from 59 to 176 stores. This expansion
caused store labor costs to increase as a percentage of net sales due to the
increased store labor costs required to service commercial customers and the
lower level of sales generated by new Commercial Sales Centers during their
start-up phase. As a result, store labor increased by $9.0 million during
fiscal 1995 over fiscal 1994 and, as a percentage of net sales, increased to
12.7% from 12.0%. The increase in such expenses was offset in part by a
reduction in advertising costs of $4.9 million resulting from the Company
limiting its advertising in response to its reduced in-stock position during
portions of the fiscal year.
Interest expense for fiscal 1995 was $14.4 million compared to $10.3 million
for fiscal 1994. The increase in interest expense was the result of higher
average borrowings and increases in the LIBOR interest rate.
The Company recorded an income tax benefit of $5.4 million in fiscal 1995.
The Company's effective tax rate for fiscal 1994 was 9.0%. See Note 9 to
Consolidated Financial Statements.
As a result of the above factors, the Company incurred a net loss of $9.1
million in fiscal 1995 as compared to net income before extraordinary gain of
$8.0 million in fiscal 1994.
Fiscal Year Ended January 29, 1995 Compared to Fiscal Year Ended January 30,
1994
Net sales for fiscal 1994 increased by $42.7 million, or 6.6%, over net
sales for fiscal 1993. This increase was primarily due to an increase in
comparable store sales of 5.2% ($33.5 million), and also an increase in net
sales from new stores of $9.2 million. The increase in fiscal 1994 comparable
store net sales, which the Company believes was in line with industry levels,
was affected by difficult comparisons to prior fiscal years. The greater
increases in comparable store net sales in fiscal 1992 (14.3%) and 1993 (9.9%)
resulted in part from the poor operating performance in fiscal 1991 when
vendor restrictions during the year caused fill-rates to fall to as low as
50%. During fiscal 1994, the Company opened 10 new stores, relocated 12
stores, expanded five stores at existing locations and closed a total of 4
stores in addition to relocations.
Gross profit for fiscal 1994 was $277.8 million, or 40.4% of net sales,
compared with $247.9 million, or 38.4% of net sales, for fiscal 1993. The
increase in gross profit as a percentage of net sales was largely due to cost
reductions obtained on merchandise purchases and a relative increase in sales
of higher margin automotive hard parts attributable to the Company's increase
in the number of hard parts SKUs stocked in its stores.
Operating and administrative expenses for fiscal 1994 increased by $21.3
million over such expenses for fiscal 1993 and, as a percentage of net sales,
increased from 36.8% to 37.6%. The increase in the expense ratio was
attributable to the costs associated with the opening of six Priority Parts
depots and the initiation of an investment during the second half of fiscal
1994 in store-based information systems, including the EPC, Retail Paperless
Management System and store-wide satellite communications network. In
addition, store labor increased as the Company formalized and expanded its
marketing efforts to commercial customers, and during fiscal 1994 increased
the number of stores with Commercial Sales Centers from five to 59.
Interest expense decreased by $1.4 million for fiscal 1994 compared with
fiscal 1993 due to a reduction in outstanding indebtedness associated with the
cancellation of $97.2 million of debt, which was offset in part by an increase
in the LIBOR interest rate.
The Company's effective tax rate for fiscal 1994 was 9.0% as a result of the
elimination of the deferred tax asset valuation allowance of $2.2 million. The
Company recorded an income tax benefit of $0.5 million in fiscal 1993. See
note 9 to Consolidated Financial Statements.
The extraordinary item of $97.2 million in fiscal 1994 represents
cancellation of debt resulting from a restructuring of the Company's long term
debt. The debt, which was originally recorded at a face value of $178.2
million, was restructured into an $81.0 million facility resulting in the
gain. See Notes 4 and 9 to Consolidated Financial Statements.
As a result of the above factors, net income before extraordinary gain was
$8.0 million in fiscal 1994 as compared to a net loss of $0.7 million in
fiscal 1993.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs have been for the funding of working
capital requirements (primarily inventory) and leasehold improvements
associated with its store repositioning and expansion program, the automation
and fixturing of its distribution centers, the development and roll-out of its
store-based information systems, the expansion of its commercial sales program
and the increase in the number of hard parts SKUs in its stores. The Company
has financed its growth and infrastructure investments primarily through
internally generated funds, funds borrowed under the Credit Agreement, funds
obtained from an affiliate and lease arrangements with third parties.
In fiscal 1994, net cash provided by operating activities was $15.1 million.
Of this amount, $8.0 million was provided by income before extraordinary gain.
Depreciation, amortization and deferred interest contributed an additional
$15.1 million of funds, while $8.0 million of funds were used for working
capital purposes. Net cash used for investing activities was $19.0 million and
was comprised primarily of $4.3 million of funds used to purchase assets held
for sale and $14.6 million of funds used for capital expenditures. Net cash
used in financing activities was $5.4 million and was comprised primarily of
debt repayments of $2.4 million and capital lease payments of $3.0 million.
In fiscal 1995, net cash used in operating activities was $3.4 million. Of
this amount, $9.1 million was due to a net loss, while depreciation and
amortization contributed $17.0 million of funds and $11.3 million of funds
were used for working capital purposes. Net cash used for investing activities
was $7.9 million and was comprised primarily of $4.1 million of funds provided
by the sale of assets held for sale and $11.6 million of funds used for
capital expenditures. Net cash provided by financing activities was $12.7
million and was comprised primarily of net borrowings of $13.9 million under
the Credit Agreement, capital lease payments of $5.0 million and a capital
contribution of $4.7 million from Holdings. See "Certain Transactions."
In the thirteen weeks ended April 28, 1996, net cash provided by operating
activities was $7.0 million. Of this amount, $1.5 million was provided by net
income. Depreciation and amortization provided an additional $5.2 million of
funds and $0.3 million was provided by working capital. Net cash used for
investing activities was $2.7 million and was comprised of $1.6 million of
funds used to purchase assets held for sale and $1.1 million used for capital
expenditures. Net cash used in financing activities was $4.0 million and was
comprised primarily of net repayments of $2.4 million under the Credit
Agreement and capital lease payments of $1.3 million.
Historically, the Company has negotiated extended payment terms from
suppliers to finance much of its inventory growth, and the Company believes
that it will be able to continue financing much of its inventory growth
through such extended payment terms after the Offering. Upon completion of the
Offering and the reduction in the Company's financial leverage, the Company
expects to obtain better pricing and other terms from its vendors. In
addition, the Company believes that it will be able to capitalize on cash
discounts that are currently offered by certain of its vendors but that the
Company has not been able to utilize historically because of cash constraints.
The Company anticipates that inventory levels will continue to increase
primarily as a result of new store openings.
Capital expenditures were $14.6 million in fiscal 1994 and $11.6 million in
fiscal 1995, and $1.1 million for the thirteen weeks ended April 28, 1996. The
Company opened, relocated or expanded 27 stores during fiscal 1994, 63 stores
during fiscal 1995 and 11 stores during the thirteen weeks ended April 28,
1996. Excluding expenditures for new, expanded and relocated stores, the
Company's capital expenditures during these periods were primarily for
refixturing its stores, automating and fixturing its distribution centers,
opening its Priority Parts depots and upgrading its information systems. The
Company plans to open, relocate or expand approximately 75 stores during
fiscal 1996 and an additional 100 to 125 stores during fiscal 1997. In
addition to the 11 stores opened, relocated or expanded during the first
quarter of fiscal 1996, the Company has executed purchase contracts or leases
for 64 stores and is in varying stages of negotiation for 60 more sites. The
Company expects that total capital expenditures for fiscal 1996 will be
approximately $9.2 million, principally for store development activities.
Additional budgeted capital expenditures include amounts for store remodels
and
21
<PAGE>
maintenance, as well as for improvements in distribution and information
systems. The Company anticipates that approximately 60% of its new and
relocated stores during fiscal 1996 will be financed by sale-leaseback
arrangements structured as operating leases that require no net capital
expenditures by the Company. With respect to these arrangements, the Company
purchases land, builds a store and sells the store to either an affiliate or a
third party lessor. During the period the Company owns the land and builds the
store, the assets are regarded as assets held for sale. It is anticipated that
the Company will continue to follow this practice as a means of financing its
expansion plans. For the remaining 40% of its planned new and relocated
stores, the Company expects to spend approximately $120,000 per store for
leasehold improvements. Certain of the sale-leaseback transactions may be
entered into with TransAtlantic Realty, Inc., an indirect wholly-owned
subsidiary of Carmel (see "Certain Transactions"). To the extent that sale-
leaseback transactions are not available to the Company as a means of
financing its planned expansion, it will need to access a credit facility,
secure other alternative means of financing and/or utilize cash flow from
operations to the extent available. In addition to capital expenditures, the
Company's new stores will require an investment in working capital,
principally for inventories, of approximately $250,000 per new store. A
substantial portion of these inventories are expected to be financed through
vendor payables. Pre-opening expenses, consisting primarily of store set-up
costs and training of new store associates, average between $35,000 and
$40,000 per store and are expensed during the month in which a store is
opened. See Note 1 to Consolidated Financial Statements.
In February 1995, the Company entered into the Credit Agreement with a group
of lending institutions for which Transamerica Business Credit Corporation
acts as agent (the "Lenders"). Under its Credit Agreement, the Company
obtained a term loan in the original principal amount of $5.0 million and
obtained revolving credit loans in an aggregate principal amount of up to
$100.0 million. The Company also has a facility for the issuance of up to $3.0
million in face amount of letters of credit. The term loan is repayable in
monthly installments through February 1997. During fiscal 1995, the Company
defaulted in its compliance with certain then existing financial covenants
related to earnings and balance sheet ratios in the Credit Agreement, which
defaults the Lenders subsequently waived in connection with their agreement to
modify such covenants in a manner which resulted in compliance by the Company
for the periods completed and facilitated continued compliance in subsequent
periods. The Company is currently in compliance with the financial covenants
contained in its Credit Agreement. The Credit Agreement, by its terms, expires
in February 1997, subject to certain rights that the Company would have to
extend the term for up to four additional one-year terms if certain conditions
are then satisfied. At April 28, 1996, $93.7 million was drawn under the
Credit Agreement and the Company had $6.3 million of existing availability
thereunder. The outstanding principal amount bears interest at LIBOR plus 3.0%
with an option to use prime plus 1.0%. At April 28, 1996, the average interest
rate under the Credit Agreement was 8.56%.
During fiscal 1995 and the thirteen weeks ended April 28, 1996, certain
affiliates of the Company made available to the Company an aggregate of $24.4
million of funding. The funding consisted of: (i) the purchases from certain
Company vendors of payables owed by the Company (of which approximately $3.7
million remained due to the Company's affiliate as of April 28, 1996), (ii) a
capital contribution and (iii) payments to the Company in the form of sale-
leaseback transactions pursuant to which new and relocated Company stores were
purchased by the affiliate at the Company's cost and are being leased back to
the Company. The Company believes that the terms of such sale-leaseback
transactions were at least as favorable as terms that the Company would have
received in similar transactions entered into with unaffiliated third parties.
The Company has replaced certain of these sale-leasebacks with similar
arrangements with unrelated third parties where the proceeds of the
replacement transactions received by the Company's affiliate were used to
enter into additional sale-leaseback transactions with the Company on
substantially similar terms as the original sale-leasebacks. The terms of the
replacement transactions were set in arms-length negotiations, although
generally not as favorable to the Company as the original sale-leasebacks
entered into with its affiliate. The Company intends to continue to replace
sale-leasebacks with its affiliates, the proceeds of which may or may not be
used by its affiliate to enter into new sale-leaseback arrangements with the
Company. See "Certain Transactions" and Note 2 to Consolidated Financial
Statements.
The net proceeds from the Offering will be used to repay amounts outstanding
under the Credit Agreement. Any balance remaining due under the Credit
Agreement after giving effect to the Offering and the application of
22
<PAGE>
the net proceeds therefrom will be repaid from existing cash balances. See
"Use of Proceeds." Although the Company anticipates that the availability of
sale-leaseback financing and internally generated funds will be sufficient to
finance its expansion plans for the foreseeable future, following completion
of the Offering and the application of the net proceeds therefrom, the Company
intends to obtain a new credit facility to fund, in part, its expansion and
working capital requirements, including payments to its vendors. See "Risk
Factors--Uncertainty as to Future Credit Facility and Terms."
QUARTERLY RESULTS AND SEASONALITY
The Company's business is somewhat seasonal in nature, with the highest
sales occurring in the summer months of June through August, in which average
weekly per store sales historically have been approximately 15% higher than in
the slowest months of December through February. The Company's business is, in
addition, affected by weather conditions. While unusually severe weather tends
to soften sales as elective maintenance is deferred during such periods,
extremely hot and cold weather tends to enhance sales by causing parts to fail
and sales of seasonal products to increase.
23
<PAGE>
The following table sets forth certain quarterly unaudited operating data of
the Company for fiscal 1994 and 1995 and for the first quarter of fiscal 1996.
The unaudited quarterly information includes all adjustments which management
considers necessary for a fair presentation of the information shown.
The data presented below should be read in conjunction with the Consolidated
Financial Statements, including the related Notes thereto included herein, the
other financial information included herein, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "The Merger."
<TABLE>
<CAPTION>
FISCAL 1994
------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------- -------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C>
Net sales......................... $164,622 $175,498 $180,522 $167,493
Gross profit...................... 65,044 70,200 73,541 68,992
Operating income.................. 4,369 5,424 6,621 2,763
Income before extraordinary gain.. 796 2,024 2,944 2,274
Net income(1)(2).................. 796 92,641 2,944 8,843
Income per share:
Net income per common share before
extraordinary gain............... 0.03 0.06 0.10 0.07
Extraordinary gain................ -- 2.94 -- 0.21
-------- -------- -------- --------
Net income........................ $ 0.03 $ 3.00 $ 0.10 $ 0.28
<CAPTION>
FISCAL 1995
------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------- -------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C>
Net sales......................... $172,301 $186,074 $186,054 $173,923
Gross profit...................... 68,589 71,416 74,236 70,294
Operating income (loss)........... 390 578 1,145 (2,275)
Net loss.......................... (1,798) (1,913) (1,645) (3,738)
Loss per share:
Net loss.......................... $ (0.06) $ (0.06) $ (0.05) $ (0.12)
<CAPTION>
FISCAL 1996
-------------
FIRST QUARTER
-------------
(IN THOUSANDS
OF DOLLARS,
EXCEPT PER
SHARE DATA)
<S> <C>
Net sales......................... $189,185
Gross profit...................... 75,476
Operating income.................. 6,026
Net income........................ 1,499
Income per share:
Net income........................ $ 0.05
</TABLE>
- --------
(1) The Company recorded extraordinary gains of $90.6 million in the second
quarter and $6.6 million in the fourth quarter of fiscal 1994. The
extraordinary gains represent gains resulting from cancellation of a
portion of the Company's long-term debt.
(2) The Company eliminated the deferred tax asset valuation allowance of $2.2
million during the fourth quarter of fiscal 1994. See note 9 to
Consolidated Financial Statements.
INFLATION
The Company does not believe its operations have been materially affected by
inflation. The Company believes that it will be able to mitigate the effects
of future merchandise cost increases principally through economies of scale
resulting from increased volumes of purchases, selective forward buying and
the use of alternative suppliers.
24
<PAGE>
BUSINESS
GENERAL
The Company is the largest retailer of automotive parts and accessories in
the Western United States and one of the largest such retailers in the United
States. As of April 28, 1996, the Company operated 569 stores as a fully
integrated chain under three tradenames, each of which at one time represented
a separate retail chain: Checker Auto Parts, founded in 1968 and operating in
the Southwestern and Rocky Mountain states; Schuck's Auto Supply, founded in
1917 and operating in the Pacific Northwest; and Kragen Auto Parts, founded in
1947 and operating primarily in California. As such, each has a long operating
history, established name recognition and customer loyalty in its respective
markets. In December 1986, the Checker Auto Parts and Kragen Auto Parts chains
were acquired from Lucky Stores and merged in 1987 with Schuck's to form the
Company. Based on store count, the Company believes it is the largest retailer
of automotive parts and accessories in 18 of its 24 markets.
The Company is a consumer-oriented, specialty retailer primarily servicing
the DIY customer, with an increasing emphasis on the commercial customer. The
Company offers a broad selection of national brand name and private label
automotive products for domestic and imported cars, vans and light trucks,
including new and remanufactured automotive hard parts, maintenance items and
accessories. The Company's operating strategy is to offer these products at
generally the lowest prices in each of its markets and at conveniently located
and attractively designed stores, supported by knowledgeable and courteous
customer service personnel. As a speciality retailer, the Company has chosen
not to sell tires or perform automotive repairs or installations.
In order to improve the efficiency of its operations, enhance customer
service and position the Company for future growth, the Company began in
fiscal 1994 to implement a sophisticated, centralized infrastructure and to
install various store-based information systems. At the same time, the Company
initiated its Commercial Sales Program. Implementation of these strategies
involved capital expenditures (including capital leases) of approximately
$30.1 million during fiscal 1994 and 1995 and operating costs of approximately
$15.5 million during fiscal 1995, which contributed to a net loss for that
fiscal year. In addition, during this period, the Company accelerated its
store expansion and repositioning program to increase penetration of its
existing markets (see "Business--Store Development and Expansion Strategy").
These initiatives provided significant momentum to the Company's operations as
reflected in the first quarter of fiscal 1996, with operating profit
increasing to $6.0 million from $0.4 million during the first quarter of
fiscal 1995. See "Summary Consolidated Financial Data" and "Managements's
Discussion and Analysis of Financial Condition and Results of Operations."
Several of the Company's key initiatives that have been implemented
beginning in fiscal 1994 are summarized below.
. Commercial Sales Program--The Company formalized and expanded its
marketing efforts to the commercial segment of the automotive
aftermarket, which the Company believes constitutes in excess of 50% of
the approximately $75 billion of annual sales for this market. The
Company increased the number of stores with Commercial Sales Centers
from five at September 30, 1994 to 189 at April 28, 1996. Principally as
a result of this expansion, the Company's sales to commercial accounts
(including sales by stores without Commercial Sales Centers) grew to
$60.8 million in fiscal 1995 from $32.6 million in fiscal 1994 and to
$20.3 million in the first quarter of fiscal 1996 from $12.4 million in
the first quarter of fiscal 1995. The Company's Commercial Sales Program
became profitable in the first quarter of fiscal 1996. Based on the
success of this program, the Company expects to continue to assess
opportunities to add Commercial Sales Centers to its existing and new
stores.
. Customer Service Culture--The Company increased its focus on formal
classroom training and on-the-job training, customer service measurement
systems and incentive programs for its district managers, store
managers, sales associates and other employees, in order to encourage
development of technical expertise and customer service skills. To
further encourage superior performance by its employees the Company has
recently adopted a variety of stock based plans, pursuant to which more
than 1,000 employees have been granted stock options. The Company
believes these programs have resulted in an increased level of customer
service and store-level efficiency.
25
<PAGE>
. Warehouse and Distribution--The Company completed the conversion of its
warehouse and distribution facilities from a manual, labor intensive,
paper-based system to a technologically advanced, fully integrated
system, which has reduced warehouse and distribution costs while
providing the Company with sufficient capacity to meet the requirements
of its growth plans for the foreseeable future. This new system, which
resulted in expenditures of approximately $10.7 million, of which $8.5
million was financed by capital leases, became fully operational during
the fourth quarter of fiscal 1995.
. Store-Based Information Systems--The Company installed a new POS system,
integrated the POS with the EPC, implemented its Retail Paperless
Management System and installed a store-wide satellite communications
network. Each of these systems developments has improved store labor
productivity and enhanced customer service. Total expenditures to
develop and implement these systems were approximately $25.6 million, of
which $14.4 million were financed by capital leases.
. Priority Parts--The Company expanded its Priority Parts operation by
improving its delivery system and adding seven strategically located
parts depots to its two existing locations. This expansion has enabled
the Company to better serve its customers by making available to more
than 400 of its stores, on a same day delivery basis, an additional
200,000 SKUs not regularly stocked in its stores and has also enabled it
to increase sales to commercial accounts due to the broader availability
of automotive hard parts. Prior to this expansion, this same day
delivery service was available to only 80 of the Company's stores. The
Company believes that its Priority Parts operation provides it with an
important competitive advantage.
. Call Center--The Company completed the installation of a centralized
Call Center that handles the overflow of customer calls during the
stores' busiest hours of operation. Use of the Call Center allows sales
associates to give undivided attention to customers at the store, while
customers who call the store are serviced directly by Call Center
operators who are dedicated to such callers. As a result, the Call
Center has enhanced customer service while improving store labor
productivity. At April 28, 1996, over 200 of the Company's stores had
access to the Call Center and additional stores will continue to be
added.
. Store Expansion and Repositioning--The Company has accelerated the
relocation of smaller stores to larger stores at better locations, the
expansion of certain other stores and the opening of new stores
primarily in existing markets. During fiscal 1995, the Company opened a
total of 54 new stores (of which 30 resulted from relocations of
existing stores) and expanded 9 stores resulting in total expenditures
of $18.9 million, of which $15.5 million was funded through sale-
leaseback transactions and $3.4 million was funded with internally
generated funds. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
The focus of the Company's expansion strategy is to open, relocate or expand
stores primarily in existing markets in order to further increase its name
recognition and market penetration while benefiting from economies of scale in
advertising, management and distribution costs. The Company plans to open,
relocate or expand approximately 75 stores in fiscal 1996 (compared to 63
stores in fiscal 1995) and approximately 100 to 125 stores in fiscal 1997. The
Company opened, relocated or expanded 11 stores during the first quarter of
fiscal 1996, currently has executed purchase contracts or leases for 64
additional stores and is in various stages of negotiation for 60 more sites.
The Company has also identified numerous potential additional sites for future
expansion.
The Company believes that its recent financial performance demonstrates the
effectiveness of the Company's investments in its corporate infrastructure and
store-based information systems, its focus on commercial customers and its
store repositioning program. The Company believes these initiatives have
positioned it for future growth in sales and profitability. During the first
quarter of fiscal 1996, the Company's total sales and comparable store sales
increased 10% and 7%, respectively, over the comparable period in fiscal 1995,
while its operating profit improved to $6.0 million from $0.4 million and net
income increased to $1.5 million from a net loss of $1.8 million.
26
<PAGE>
AUTOMOTIVE AFTERMARKET INDUSTRY
According to industry estimates, the size of the automotive aftermarket for
replacement parts, maintenance items and accessories was approximately $75
billion in sales in 1995. The Company believes that the automotive aftermarket
for parts, maintenance items and accessories is growing because of, among
other things, (i) increases in the size and age of the country's automotive
fleet, (ii) increases in the number of miles driven annually per vehicle,
(iii) the higher cost of new cars as compared to historical costs, (iv) the
higher cost of replacement parts as a result of technological changes in
recent models of vehicles and (v) the increasing labor costs associated with
parts, installation and maintenance.
The automotive aftermarket distribution channels are highly fragmented. The
Company believes, however, that the industry is consolidating as national and
regional specialty retail chains gain market share at the expense of smaller
independent operators and less specialized mass merchandisers. Automotive
specialty retailing chains with multiple locations in given market areas, such
as the Company, enjoy competitive advantages in purchasing, distribution,
advertising and marketing compared to most small independent retailers. In
addition, the increase in the number of automotive replacement parts caused by
the significant increase in recent years in the variety of domestic and
imported vehicle makes and models has made it difficult for smaller
independent retailers and less specialized mass merchandise chains to maintain
inventory selection broad enough to meet customer demands. The Company
believes this has created a competitive advantage for those automotive
speciality retailing chains, such as CSK Auto, that have the distribution
capacity and sophisticated information systems to stock and deliver a broad
inventory selection.
MARKETING AND MERCHANDISING STRATEGY
The Company's marketing and merchandising strategy is to build market share
by providing a broad selection of national brand name and private label
products at generally the lowest prices in each of its markets at conveniently
located and attractively designed stores, supported by knowledgeable and
courteous customer service personnel.
Customer Service
The Company is a customer-oriented retailer dedicated primarily to DIY
consumers. The Company's sophisticated, centralized infrastructure and store-
based information systems, as well as its extensive training programs, are
designed to enhance customer service.
The Company believes that recruiting, training and retaining high quality
sales associates is a major ingredient of successful retailing. The Company
has implemented training programs and incentives to encourage the development
of technical expertise by its sales associates that enables them to
effectively advise customers on product selection and use. CSK University, the
Company's sales associate development program, is dedicated to the continuous
improvement of store associates through structured on-the-job training and
formal classroom education. The curriculum focuses on four areas of the
associates' development: (i) customer service skills, (ii) basic automotive
systems, (iii) advanced automotive systems and (iv) management development.
More than 1,000 associates have passed the ASEP2 (a nationally recognized
diploma for parts technicians) after completing the Company's automotive
system training. Much of the training is delivered through formal classes in
14 training centers that are fully equipped with the same systems as are in
the Company's stores. The Company also provides continuing training programs
for store managers and district managers designed to assist them in increasing
store-level efficiency and improving their potential for promotion. The
Company believes that its training programs enable sales associates to provide
a high level of service to a wide variety of customers ranging from less-
informed DIY consumers to more sophisticated purchasers requiring diagnostic
advice. In addition, the Company requires periodic meetings of district and
store managers to facilitate and enhance communications within the
organization.
Further customer service initiatives include: free testing of starters,
alternators and batteries; free charging of batteries; installation assistance
for batteries, windshield wipers and other selected products; "no hassle"
return policies; and electronically maintained lifetime warranties, which
eliminate the need for consumer record keeping.
27
<PAGE>
The Company is enhancing its customer service by implementing a program to
measure and improve the level of customer service at each store. The Company
uses its centralized database as a source to make approximately 64,000 calls
annually to customers inquiring as to their overall satisfaction with the
Company's associates, pricing, product selection and quality. A quantified
customer satisfaction index is provided to each store and the appropriate
management personnel to ensure that customer service levels remain a store
focus.
Product Selection
The Company's objective is to carry a broad selection of national brand name
products that generate customer traffic and have strong appeal to its
commercial customers. In addition, the Company stocks a wide selection of high
quality private label products that appeal to value conscious customers.
Private label products accounted for approximately 25% of total sales in
fiscal 1995. Each store offers an extensive product line, including automotive
hard parts such as starters, alternators, shock absorbers, mufflers, brakes,
spark plugs and batteries, as well as a wide variety of maintenance items,
such as motor oil, lubricants, waxes, cleaners, polishes and antifreeze. In
addition, each store offers general accessories such as car stereos, alarms,
trim, floor mats, tools and seat covers.
The Company's stores, which average 6,000 square feet in size, offer between
13,000 and 16,000 SKUs of well-known, national brand name and private label
automotive products. In the event that a store does not carry a specific part,
associates are able to access the Company's Priority Parts operation.
Beginning in fiscal 1994, the Company expanded its Priority Parts operation by
improving its delivery system, and adding seven strategically located parts
depots to its two existing locations, which has enabled the Company to (i)
better serve its customers by making available to more than 400 of its stores,
on a same day delivery basis, an additional 200,000 SKUs not regularly stocked
in its stores and (ii) increase sales to commercial accounts due to broader
availability of automotive hard parts. Prior to this expansion, this same day
delivery service was available to only 80 of the Company's stores. In
addition, another 500,000 parts can be ordered for delivery within three days.
The Company's Priority Parts operation handles approximately 150,000 inquiries
each week. Store associates are able to electronically inquire on price and
availability and order parts from the Priority Parts operation through the EPC
and receive immediate confirmation of availability without having to make
telephone inquiries. The Company believes that its Priority Parts operation
provides it with an important competitive advantage.
The Company has recently commenced a merchandising program designed to
determine the optimal inventory mix at the individual store level based on
that store's historical sales trends. The Company has classified its product
mix into 91 separate categories and believes that it can improve store sales,
gross profit and inventory turnover by tailoring individual store inventory
mix based on historical sales patterns for each of the 91 product categories.
This program has been implemented for three important product categories (air
conditioning, brakes and internal engine) to date and, based on positive
preliminary results, the Company intends to incorporate 40 additional
automotive hard part product categories into this program in fiscal 1996 with
additional categories incorporated thereafter.
Pricing
The Company's pricing strategy is to generally offer the lowest prices in
each of its markets. The Company offers to beat by 5% any competitor's lower
price. The Company closely monitors its competitors to ensure aggressive
pricing in all markets with merchandise generally priced below manufacturers'
suggested retail prices. The Company maintains numerous pricing zones in order
to maximize margins while maintaining its price competitiveness.
Advertising
The Company supports its marketing and merchandising strategy through print,
radio and television advertising, as well as through in-store promotional
displays. The Company advertises in print through the use of monthly color
circulars. The circulars, which are produced by the Company's in-house
advertising department,
28
<PAGE>
emphasize specific products and contain redeemable coupons. The Company
advertises on radio, television and billboards primarily to reinforce the
Company's image and name recognition. Television advertising is targeted to
sports programming and radio advertising primarily is aired during drive time.
The Company's in-store signs and displays are used to promote products and
identify departments, as well as to announce store specials. The Company also
has web sites on the Internet at: (i) http://www.checkerauto.com, (ii)
http://www.schucks.com and (iii) http://www.kragen.com.
Proprietary Credit Card
The Company is initiating the use of a private label credit card which will
facilitate its customers' purchases of certain more expensive products such as
engine, transmissions and carburators, provide customer convenience, and
further develop customer loyalty. The credit risk of the new program will be
absorbed by the third-party administrator of the credit card.
STORE-BASED INFORMATION SYSTEMS
Beginning in fiscal 1994, the Company focused on developing store-based
information systems designed to improve the efficiency of its operations and
enhance customer service. The Company's store-based information systems are
described below.
Point of Sale System
The Company has installed new POS registers and software in all of its
stores. The new POS system, which was rolled-out between June and October
1995, has improved store productivity and customer service by streamlining in-
store procedures. Customer transactions previously requiring handwritten
information have been eliminated as registers are now tied to the EPC and the
central inventory system. This allows for paperless transactions and
electronic maintenance of warranty information. Additionally, the POS software
tracks the history of individual customer purchases, which allows the Company
to monitor customer activity for use in regionalized marketing and
merchandising programs.
Electronic Parts Catalog
The Company has upgraded and expanded the capabilities of its EPC, which is
installed in each of its stores. The EPC is a software based system that
identifies the location and availability of over one million parts. The EPC is
a user-friendly tool that enables the Company's sales associates to assist
customers in parts selection and ordering based on simple input of the year,
model and engine type and application needed. The EPC system covers vehicles
with model years from 1967 through 1996. Once provided with this basic
information, the EPC displays which part is needed and whether it is located
in the store. If the part is not available at the store, the EPC indicates
whether it can be obtained by special order through the Company's Priority
Parts depots or certain warehouse distributors with same day delivery, or
directly from the manufacturer. Information about the customer's car can be
entered into a permanent customer database that can be instantly accessed
whenever the customer visits or phones the store. The EPC also displays
related parts that the sales associates can recommend to the customer for
purchase, and prints parts lists for the customer. In fiscal 1995, the Company
enhanced the effectiveness of the EPC by integrating it with its new POS
system and centralized Company database. This integration improves customer
service by (i) reducing check-out time by fully automating the ordering
process between the parts counter and the POS register, (ii) allowing the
store associate to order parts electronically with immediate confirmation of
availability and/or delivery, and (iii) providing up to the minute pricing of
products.
Retail Paperless Management System
The Company has installed its Retail Paperless Management System ("RPMS"),
which is a store-based software system used to improve store efficiency. The
RPMS provides for interactive store associate development and testing,
communication via Company-wide electronic mail, knowledge-based interviewing
of associate applicants, automated associate time and attendance recording and
forms automation. The Company completed the roll-out of the RPMS in January
1995 and continues to implement new features.
Satellite Communications Network
The Company has established a satellite communications network linking all
of its stores with its corporate office. The satellite network enables the
Company to efficiently obtain and deliver to its stores all file transfers,
29
<PAGE>
including pricing down-loads, sales information updates and interactive
transactions such as electronic parts ordering. The system also broadcasts
common files to all stores simultaneously to update the EPC. Additionally, the
satellite network significantly increases the speed of credit card and check
authorization. The Company completed the roll-out of the satellite network
during the middle of fiscal 1994.
Call Center
The Company has established a centralized Call Center whereby store personnel
have the option to reroute customer calls to a central location during the
store's busiest hours of operation. The Call Center is equipped to enable Call
Center personnel to perform all functions that store personnel would normally
handle, such as store specific parts look-up, price look-up and inventory
availability verification. Associates in the Call Center can take an order from
a customer and transmit it to the store, enabling the order requested to be
picked-up by the customer. Use of the Call Center allows sales associates to
give their undivided attention to customers at the store while customers who
call the store are serviced directly by Call Center operators who are dedicated
to such callers. The Company currently has more than 200 stores with the
capability of accessing the Call Center and an additional 100 stores are
expected to be added in fiscal 1996.
STORE OPERATIONS
The Company's stores are divided into five geographic regions: Southwest,
Rocky Mountain, Northwest, Southern California and Northern California. Each
region is administered by a regional manager, each of whom oversees seven to
ten district managers. Each of the Company's district managers has
responsibility for between six and 15 stores. As of April 28, 1996, the
geographic distribution of the Company's stores and the tradenames under which
they operate are set forth in the table below.
<TABLE>
<CAPTION>
SCHUCK'S CHECKER KRAGEN COMPANY
AUTO SUPPLY AUTO PARTS AUTO PARTS TOTAL
----------- ---------- ---------- -------
<S> <C> <C> <C> <C>
California............................ -- 1 254 255
Washington............................ 72 -- -- 72
Arizona............................... -- 66 -- 66
Colorado.............................. -- 49 -- 49
Idaho................................. 13 3 -- 16
Oregon................................ 23 -- -- 23
Utah.................................. -- 24 -- 24
New Mexico............................ -- 17 -- 17
Texas................................. -- 17 -- 17
Nevada................................ -- 12 3 15
Montana............................... -- 8 -- 8
Iowa.................................. -- 1 -- 1
Nebraska.............................. -- 3 -- 3
Wyoming............................... -- 3 -- 3
--- --- --- ---
108 204 257 569
=== === === ===
</TABLE>
Stores generally are open seven days a week, with hours from 8:00 a.m. to
9:00 p.m. (9:00 a.m. to 6:00 p.m. on Sundays). Each store employs approximately
10 to 20 associates, including a store manager, two assistant store managers
and a staff of full-time and part-time associates.
Store Formats
The Company's stores generally are located in high visibility, high traffic
strip shopping centers or in free standing units adjacent to strip shopping
centers. The stores, which range in size from 2,800 to 15,000 square feet,
average approximately 6,000 square feet in size and offer between 13,000 and
16,000 SKUs. More than 150 stores carry expanded product lines representing a
total of approximately 16,000 SKUs. These larger stores carry an expanded mix
of automotive hard parts, including, among others, electrical, suspension, fuel
system and brake system parts.
During fiscal 1995, the Company designed three prototype stores of 6,000,
8,000 and 12,000 square feet in size. The store size for a given new location
is selected based upon volume expectations determined through demographics and
other Company studies included in the Company's detailed site selection process
(see "--Store Development and Expansion Strategy"). Prior to redesign of the
current prototype stores, the Company
30
<PAGE>
utilized various store prototype sizes including 5,400 and 7,000 square foot
prototypes. The following table sets forth the Company's stores, by size, as
of April 28, 1996:
<TABLE>
<CAPTION>
NUMBER OF
STORE SIZE STORES
---------- ---------
<S> <C>
10,000 sq. ft. or greater......................................... 32
8,000-9,999 sq. ft. .............................................. 51
6,000-7,999 sq. ft. .............................................. 106
5,000-5,999 sq. ft. .............................................. 202
Less than 5,000 sq. ft. .......................................... 178
</TABLE>
Approximately 60% of the Company's stores are freestanding, with the balance
principally located within strip shopping centers. Approximately 85% to 90% of
each store's square footage is selling space, of which approximately 40% to
50% is dedicated to automotive hard parts inventory. The hard parts inventory
area is fronted by a counter staffed by knowledgeable parts personnel and is
equipped with EPCs. The remaining selling space contains gondolas for
accessories and maintenance items, including oil and air filters, additives,
waxes and other parts, together with specifically designed shelving for
batteries and, in many stores, oil products.
STORE DEVELOPMENT AND EXPANSION STRATEGY
In the second half of fiscal 1994, the Company accelerated the repositioning
of its store base primarily through (i) the relocation of existing facilities
to larger facilities at better locations, (ii) the expansion of certain other
existing facilities and (iii) the opening of new stores in existing markets.
During fiscal 1995, the Company opened 24 new stores, relocated 30 stores and
expanded 9 stores. The Company has identified most of its stores smaller than
5,000 square feet as future relocation or expansion priorities.
The following table sets forth the Company's store development activities
during the periods indicated.
<TABLE>
<CAPTION>
THIRTEEN WEEKS
FISCAL YEAR ENDED ENDED
------------------------------------------- --------------
FEB. 2, JAN. 31, JAN. 30, JAN. 29, JAN. 28, APRIL 28,
1992 1993 1994 1995 1996 1996
------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Beginning stores........ 558 549 524 538 544 566
New stores.............. 5 1 15 10 24 3
Relocated stores........ 7 7 25 12 30 6
Closed stores (including
relocated stores)...... (21) (33) (26) (16) (32) (6)
--- --- --- --- --- ---
Ending stores.......... 549 524 538 544 566 569
=== === === === === ===
Expanded stores......... 5 2 13 5 9 2
Total new, relocated and
expanded stores........ 17 10 53 27 63 11
=== === === === === ===
</TABLE>
During fiscal 1995, the Company opened 24 new stores, relocated 30 older
stores and expanded 9 stores. Store expansion expenditures totaled
approximately $18.9 million, of which $15.5 million was funded through sale-
leasebacks, and $3.4 million was funded with internally generated funds.
During the thirteen weeks ended April 28, 1996, the Company opened three new
stores, relocated six stores and expanded two stores at a total cost of
approximately $3.8 million, of which $3.4 was funded through sale-leasebacks
and $0.4 million was funded with internally generated funds.
During fiscal 1994, the Company established its Market Strategy Group as
part of its Real Estate Department. This Group utilizes a sophisticated,
market-based approach that identifies locations based on detailed demographic
and competitive studies, including population density, growth patterns, age,
ethnicity, per capita income, vehicle traffic counts, and the number and type
of existing automotive-related facilities, such as
31
<PAGE>
automotive parts stores and other competitors within a pre-determined radius
of the potential new location. These potential locations are compared to
existing Company locations to determine opportunities for relocating or
expanding existing stores and opening new stores.
The Company is seeking to further penetrate its existing markets in the
Western United States by (i) expanding successful stores at existing locations
and, if necessary, by relocating stores in the same market to maximize sales
volume and profitability at proven sites and (ii) adding new stores primarily
to markets currently served by the Company in order to increase market
penetration, while benefiting from economies of scale in advertising,
distribution and management costs.
The Company plans to open, relocate or expand approximately 75 stores in
fiscal 1996, of which approximately 60% are expected to be relocations or
expansions, and approximately 100 to 125 stores in fiscal 1997, primarily in
its existing markets. During the fiscal quarter ended April 28, 1996, the
Company opened, relocated or expanded 11 stores and currently has executed
purchase contracts or leases for an additional 64 stores. The Company is in
varying stages of negotiations for 60 more sites for relocations or additional
stores and has identified numerous potential additional sites for future
expansion. New stores generally become profitable during the first year of
operation.
COMMERCIAL SALES PROGRAM
In addition to its primary focus on serving the DIY consumer, in late fiscal
1994 the Company increased and formalized its marketing efforts to the
commercial segment of the automotive replacement parts market. The Company
believes that this segment of the market constitutes in excess of 50% of the
approximately $75 billion of annual sales in the automotive aftermarket for
replacement parts, maintenance items and accessories. The Commercial Sales
Program, which is intended to facilitate penetration of this market segment,
is targeted to professional mechanics, auto repair shops, auto dealers, fleet
owners, mass and general merchandisers with auto repair facilities and other
commercial repair outlets located near the Company's stores. Each Commercial
Sales Center has a dedicated in-store salesperson, driver and delivery
vehicle. In addition, the Company employs a District Sales Manager who has
responsibility for servicing existing commercial accounts and developing new
commercial accounts for approximately every five stores that have a Commercial
Sales Center.
In fiscal 1993, prior to the formalization and roll-out of the Commercial
Sales Program, sales to commercial customers were $18.6 million. The Company
has experienced strong growth in sales to commercial customers as a result of
the opening and maturation of its Commercial Sales Centers. At September 30,
1994, the Company operated Commercial Sales Centers in five of its stores and
at April 28, 1996, it operated Commercial Sales Centers in 189 of its stores.
Commercial sales increased to $60.8 million in fiscal 1995 from $32.6 million
in fiscal 1994 and to $20.3 million in the first quarter of fiscal 1996 from
$12.4 million in the first quarter of fiscal 1995. Based on the initial
success of this program, which became profitable in the first quarter of
fiscal 1996, the Company will continue to assess opportunities to add its
Commercial Sales Centers to its existing stores as well as to its new stores.
Based on market demographics, the Company believes that an additional 75 to
100 of its existing stores are candidates for Commercial Sales Centers.
PURCHASING
Merchandise is selected and purchased for all stores by personnel at the
Company's corporate headquarters in Phoenix, Arizona from over 300 suppliers.
No one class of product and no single supplier accounted for as much as 10% of
the Company's total sales or purchases in fiscal 1995.
The Company's inventory management systems include the E-3 Trim Buying
System, which provides inventory movement forecasting based upon history,
trend and seasonality. Combined with service level goals, vendor lead times
and cost of inventory assumptions, the E-3 Trim Buying System determines the
timing and size of purchase orders. Approximately 90% of the dollar value of
transactions are sent via electronic data interchange with the remainder sent
by a computer facsimile interface. The Company's store replenishment system
generates orders based upon store on-hand and store model stock. This incudes
an automatic model stock
32
<PAGE>
adjustment system utilizing historical sales, seasonality and store
presentation requirements. The Company has also recently implemented an
allocation system that enables it to allocate seasonal and promotional
merchandise based upon a store's history for prior promotional and seasonal
sales.
The Company offers products with nationally recognized, well advertised,
brand names, such as Armor All, Autolite, Blue Streak, Castrol, Dayco, Exide,
Federal Mogul, Fel-Pro, Fram, Havoline, Mobil, Monroe, Pennzoil, Prestone,
Quaker State, Slick 50, Stant, Sylvania, TRW, Turtle Wax and Valvoline. In
addition to brand name products, the Company's stores carry a wide variety of
high quality private label products. Because most of such products are
produced by nationally recognized manufacturers that produce similar brand
name products that enjoy a high degree of consumer acceptance, the Company
believes that its private label products are of a quality that is comparable
to such brand name products.
As a result of this Offering and the associated deleveraging and improvement
in the Company's liquidity, the Company anticipates that it will broaden its
vendor base and achieve improved pricing and terms from its existing vendors.
WAREHOUSE AND DISTRIBUTION
The Company has converted its warehouse and distribution system from a
manual, labor intensive, paper-based system to a technologically advanced
fully integrated system, which became fully operational during the fourth
quarter of fiscal 1995. This conversion has reduced warehouse and distribution
costs, while providing the Company with sufficient capacity to meet the
requirements of its growth plans for the foreseeable future. The new system
utilizes bar coding, radio frequency scanners and sophisticated conveyor and
put-to-light systems. As part of the overhaul of its warehouse and
distribution system, the Company consolidated from three to two main
distribution centers and expanded from two to four regional distribution
centers during fiscal 1995.
In June 1995, the Company completed the construction of its main
distribution center in Phoenix, Arizona, which incorporated the new system and
replaced the Company's existing Phoenix distribution center in October 1995.
During the period from June to October 1995, the Company experienced
disruption in the flow of product from the Phoenix distribution centers to its
stores due to the complications of relocating product to the new distribution
center. Additionally, the Company completed the automation of its Dixon,
California main distribution center in January 1995 and consolidated its
Seattle distribution operations into its Dixon distribution center in April
1995. In connection with the automation and consolidation of its distribution
centers, the Company experienced disruption in the Dixon distribution center
attributable to hardware and software problems that were resolved during the
fourth quarter of fiscal 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Both main distribution centers became fully operational during the fourth
quarter of fiscal 1995, and are now operating at significantly improved
productivity levels over those experienced by the pre-existing facilities.
Warehouse and distribution costs, as a percentage of net sales, declined from
4.5% in the first quarter of fiscal 1995 to 3.9% in the first quarter of
fiscal 1996. Each store is currently serviced by one of the Company's two main
distribution centers, with the regional distribution centers handling bulk
materials, such as oil, received directly from vendors. All of the Company's
merchandise is shipped by vendors to the Company's distribution centers, with
the exception of batteries, which are shipped directly to stores by the
vendor. The following table sets forth certain information relating to the
Company's two main distribution centers as of April 28, 1996:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
DISTRIBUTION SIZE STORES FULL-TIME
CENTER AREA SERVED (SQ. FT.) SERVED ASSOCIATES
------------ ----------- --------- --------- ----------
<C> <S> <C> <C> <C>
Phoenix, AZ Arizona, Colorado, Idaho,
Nevada,
New Mexico, California, Texas,
Utah.......................... 273,520 260 216
Dixon, CA California, Nevada, Washington,
Oregon, Idaho, Montana,
Wyoming....................... 325,500 309 300
------- --- ---
599,020 569 516
======= === ===
</TABLE>
33
<PAGE>
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems constitute an important element
of the Company's operations and growth strategy. The Company uses one Hitachi
Data System EX33 Mainframe, four IBM AS/400's ("AS/400") and over 400 personal
computers which are connected to a local area network. A satellite
communications network provides the connectivity from the centralized Company
database to the stores.
The Company's store-based information systems are on a UNIX based platform
with full connectivity between the EPC and the POS systems. This includes
electronic ordering from the EPC via the corporate office AS/400 to the
Company's Priority Parts depots, third-party warehouse distributors and
directly to vendors.
EMPLOYEES
As of April 28, 1996, the Company employed approximately 5,600 full-time
employees and 2,600 part-time employees. Approximately 83% of these personnel
are employed in store level operations, 10% in distribution and 7% in the
Company's corporate headquarters, including its Call Center and Priority Parts
operation.
The Company has never experienced any material labor disruption and believes
that its labor relations are excellent. Except for 454 employees located at
approximately 37 stores in the San Jose, California market, who have been
represented by a union for more than 18 years, none of the Company's personnel
belong to labor unions. Although the contract between this union and the
Company expired in March 1996, the Company does not believe that its
expiration will have any impact on its operations as a new agreement has been
reached with the union and is being presented to the employees for
ratification. The terms of the expired contract are still in force pending
such ratification.
FACILITIES
The following table sets forth certain information concerning the Company's
principal facilities:
<TABLE>
<CAPTION>
SQUARE NATURE OF
PRIMARY USE LOCATION FOOTAGE OCCUPANCY
----------- -------------- ------- ---------
<S> <C> <C> <C>
Corporate office............................. Phoenix, AZ 98,000 Leased(1)
Distribution center.......................... Dixon, CA 325,500 Leased
Distribution center.......................... Phoenix, AZ 273,520 Leased
Regional distribution center................. Auburn, WA 52,400 Leased
Regional distribution center................. Denver, CO 34,800 Leased
Regional distribution center................. Salt Lake, UT 32,000 Leased
Regional distribution center................. Commerce, CA 48,400 Leased
Priority Parts depot......................... Phoenix, AZ 25,643 Leased
Priority Parts depot......................... Denver, CO 36,270 Leased
Priority Parts depot......................... Seattle, WA 16,382 Leased
Priority Parts depot......................... Union City, CA 17,214 Leased
Priority Parts depot......................... San Diego, CA 20,000 Leased
Priority Parts depot......................... El Paso, TX 11,800 Leased
Priority Parts depot......................... Salt Lake, UT 17,200 Leased
Priority Parts depot......................... Rialto, CA 21,052 Leased
Priority Parts depot......................... Sacramento, CA 13,000 Leased(2)
</TABLE>
- --------
(1) This facility is owned by Missouri Falls Partners, an affiliate of the
Company. See "Certain Transactions."
(2) This facility is owned by TransAtlantic Realty, Inc. ("Realty") an
affiliate of the Company. See "Certain Transactions."
34
<PAGE>
At April 28, 1996, all but three of the Company's stores were leased. The
expiration dates (including renewal options) of the store leases are
summarized as follows:
<TABLE>
<CAPTION>
YEARS STORES(1)
----- ---------
<S> <C>
1996-2000......................................................... 42
2001-2005......................................................... 63
2006-2010......................................................... 74
2011-2020......................................................... 270
2021-2030......................................................... 91
2031-thereafter................................................... 26
</TABLE>
- --------
(1) Of these stores, 19 are owned by Realty. See "Certain Transactions."
COMPETITION
The Company competes principally in the DIY segment of the automotive
aftermarket. Although the number of competitors and the level of competition
varies by market area, the DIY market is highly fragmented and generally very
competitive. The Company competes primarily with national and regional retail
automotive parts chains (such as AutoZone, Inc., Chief Auto Parts, Inc. and
The Pep Boys-Manny, Moe and Jack, Inc.), wholesalers or jobber stores (some of
which are associated with national automotive parts distributors or
associations, such as NAPA), automobile dealers, and mass merchandisers that
carry automotive replacement parts, maintenance items and accessories (such as
Wal-Mart Stores, Inc.). The Company believes that chains of automotive parts
stores, such as that operated by the Company, with multiple locations in
regional markets, have competitive advantages in marketing, inventory
selection, purchasing and distribution, as compared to independent retailers
and jobbers that are not part of a chain or associated with other retailers or
jobbers. The Company believes that, as a result of these advantages, national
and regional chains have been gaining market share in recent years at the
expense of independent retailers and jobbers.
The principal competitive factors that affect the Company's business are
store location, customer service, product selection, availability, quality and
price. While the Company believes that it competes effectively in its various
geographic areas, certain competitors are larger in terms of sales volume,
have greater financial and management resources and have been operating longer
in certain geographic areas.
TRADENAMES, SERVICE MARKS AND TRADEMARKS
The Company owns and has registered the service mark "Schuck's" with the
United States Patent and Trademark Office for use in connection with the
automotive parts retailing business. The Company owns the rights to use the
tradenames "Checker" (in connection with the automotive parts retailing
business in the West and Southeast regions of the United States) and "Kragen".
In addition, the Company owns and has registered numerous trademarks with
respect to many of its private label products. The Company believes that its
various tradenames, service marks and trademarks are important to its
merchandising strategy, but that its business is not otherwise dependent on
any particular service mark, tradename or trademark. There are no infringing
uses known by the Company that materially affect the use of such marks.
REGULATION
The Company is subject to various laws and governmental regulations relating
to the operation of its business. The Company does not believe that compliance
with such laws and regulations has had a material impact on its operations to
date. There can be no assurance, however, that compliance with such laws and
regulations in the future will not have a material adverse effect on the
Company or its operations. While the Company does not service automobiles, it
does sublease pre-existing service bays at a small number of its store
locations to third parties. The operators of these service bays are required
to dispose of certain items, including used batteries, lubricants and oils in
accordance with applicable environmental regulations. In addition, the
35
<PAGE>
Company currently provides a recycling program for batteries and for the
collection of used lubricants at certain of its stores as a service to its
customers pursuant to agreements with third party vendors. Pursuant to the
agreements, the batteries and used lubricants are collected and disposed of by
the third-party vendors. The Company's agreements with such vendors are
designed to limit its potential liability under applicable environmental
regulations. The agreements either indemnify the Company from and against
liability that it may incur in connection with the collection and storage of
such items or provide that the third party vendor maintains ownership and
responsibility for all items collected and stored throughout the entire
collection and disposal process.
LEGAL PROCEEDINGS
On November 19, 1994, two former employees of the Company filed an action in
the United States District Court in Oregon seeking to recover unpaid overtime
compensation plus an additional equal amount of liquidated damages, costs and
reasonable attorneys' fees under the provisions of the Fair Labor Standards
Act ("FLSA"). The action was commenced as a class action on behalf of all
Company managers and senior assistant managers, but only those who opt into
the class can share in any award. The number of current and former employees
eligible for the class was 2,513; however, as of April 28, 1996, only 211
persons had opted into this class action. Plaintiffs contend that because
certain managers and senior assistant managers were, as a disciplinary
measure, suspended without pay, no managers or senior assistant managers are
exempt from the overtime requirement under FLSA. The FLSA regulations provide
for a "window of correction" that required the Company both cease the practice
and reimburse the suspended individuals to avoid liability. The Company
contends that it has complied with the "window of correction" and therefore
believes that plaintiffs' should ultimately not have any recovery. Although
the lower court has ruled against the Company on this issue and others in
connection with a motion for summary judgment, the Company intends to appeal
at the appropriate time, maintaining that the "window of correction" defense
is supported by several United States Circuit Courts. Plaintiffs have again
moved for summary judgment claiming that they worked more hours than they
reported on Company records and that they are entitled to overtime payments
over a longer period than the Company believes the FLSA mandates. Based upon
these calculations, plaintiffs seek a judgment of over $5.8 million. The
Company has vigorously opposed the motion for summary judgment maintaining
that the claimed hours worked, the regular rate of pay sought and the
computation of overtime rate are all grossly inflated and should be determined
at trial. Oral argument was held with respect to the motion for summary
judgment on August 9, 1996 and although no formal ruling has been rendered,
the judge has indicated that the questions of hours worked and computation of
overtime rate will be determined at trial. A trial has been scheduled for
September 6, 1996.
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. The damages claimed against the
Company in some of these litigations are substantial. Although the amount of
liability that may result from these matters cannot be ascertained, the
Company does not currently believe that, in the aggregate they will result in
liabilities material to the Company's consolidated financial condition or
results of operations or cash flow.
36
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers, as well as additional
information with respect to those persons, are set forth in the table below:
<TABLE>
<CAPTION>
NAME AGE POSITION AT THE COMPANY
---- --- -----------------------
<S> <C> <C>
Jules Trump............. 52 Co-Chairman of the Board, Chief Executive Officer and Director
Eddie Trump............. 50 Co-Chairman of the Board and Director
James Bazlen............ 46 President, Chief Operating Officer, Chief Financial Officer and Director
Arthur Hicks............ 61 Executive Vice President--Store Operations
Dennis Anderson......... 48 Vice President--Priority Parts
Michael Eldridge........ 46 Vice President--Regional Manager
Martin Fraser........... 41 Vice President--Distribution and Replenishment
Mary Howard............. 41 Vice President--Information Systems Applications Development
Lon Novatt.............. 35 Vice President--Legal, General Counsel and Secretary
Mark Padellford......... 42 Vice President--Commercial Sales
Monty Reese............. 46 Vice President--Advertising
John Saar............... 45 Vice President--Operations Support
Robert Shortt........... 35 Vice President--Marketing and Merchandising
Henry Torres............ 33 Vice President--Information Systems and Re-Engineering
Don Watson.............. 40 Vice President--Finance, Controller and Treasurer
James Lieb.............. 46 Director
Robert Smith............ 58 Director
</TABLE>
All directors are elected annually and serve until the next annual meeting
of stockholders or until the election and qualification of their successors.
Executive officers are elected annually by the Board of Directors and hold
office at the discretion of the Board. There are no family relationships among
the directors or executive officers of the Company, except that Jules Trump
and Eddie Trump are brothers.
Because none of the Company's current directors would be considered
independent or outside directors for purposes of the rules of the NYSE, the
Company will expand its Board of Directors to include two additional directors
who are not affiliated with the Company, one within three months of the
completion of the Offering and the other within twelve months of such date.
The Company will also appoint members of its expanded Board of Directors to an
Audit Committee and a Compensation Committee. During fiscal 1995, the Board of
Directors held no formal board meetings but acted by unanimous written consent
on five occasions.
Jules Trump has been Chairman of the Company since December 1986, its Chief
Executive Officer since March 1990 and a director of the Company since
December 1986. Mr. Trump has also served as Chairman of The Trump Group, a
private investment group, since February 1982.
Eddie Trump has been Co-Chairman of the Company since June 1996 and a
director since July 1994. Mr. Trump previously served as a director of the
Company from December 1986 until July 1992. Since February 1982, Mr. Trump has
served as President of The Trump Group.
James Bazlen has been a director of the Company since July 1994. He
previously served as a director of the Company from November 1989 through June
1992. Prior to his June 1994 promotion to President and Chief Operating
Officer, Mr. Bazlen was Vice Chairman and Chief Financial Officer of the
Company from June 1991 and also served as Senior Vice President of The Trump
Group from March 1986. Mr. Bazlen had been the Senior Vice President of the
Company from April 1990 to June 1991. Prior to joining The Trump Group in
1986, Mr. Bazlen served in various executive positions with General Electric
Company for 13 years.
37
<PAGE>
Arthur Hicks has been Executive Vice President--Store Operations of the
Company since October 1990. From July 1989 to October 1990, Mr. Hicks was Vice
President--Regional Manager of Bradlees, Inc., a discount department store
chain. Prior thereto, from February 1975 to January 1989, Mr. Hicks was Senior
Vice President--Regional Manager of the Target Stores division of Dayton
Hudson Corp.
Dennis Anderson has been Vice President--Priority Parts of the Company since
June 1991. From June 1989 to May 1991, he was the Vice President--Information
Systems. Prior thereto, Mr. Anderson was a Director of Information Systems for
Lucky Stores.
Michael Eldridge has been Vice President--Regional Manager of the Company
since July 1992. From July 1987 to July 1992, Mr. Eldridge served as Regional
Manager of the Company. Prior thereto, Mr. Eldridge was the Director of Stores
of Eyeworks-Eyelab, a division of Cole National Corp.
Martin Fraser has been Vice President--Distribution and Replenishment of the
Company since August 1995. From September 1989 to August 1995, he served in
several executive positions with the Company, including Vice President of
Logistics and Vice President--Inventory Management.
Mary Howard has been Vice President--Information Systems Applications
Development of the Company since January 1995. From January 1988 to January
1995, she was the Director of Applications Development of the Company. Prior
thereto, from October 1985 to January 1988, Ms. Howard was a Project Manager
of Allied Signal Inc., a manufacturer of aerospace products.
Lon Novatt has been Vice President--Legal, General Counsel and Secretary of
the Company since December 1995. From March 1994 to November 1995, Mr. Novatt
was Senior Counsel for Broadway Stores Inc., a department store chain. From
October 1985 to February 1994, Mr. Novatt was with the Los Angeles law firm of
Freeman, Freeman & Smiley, where he was a partner from January 1992 to
February 1994.
Mark Padellford has been Vice President--Commercial Sales of the Company
since March 1994. Prior thereto, from November 1989 to February 1994, Mr.
Padellford was Commercial Marketing Manager of Hi-Lo Automotive, Inc., a
wholesaler and retailer of automotive parts and accessories.
Monty Reese has been Vice President--Advertising of the Company since May
1996. From October 1994 to January 1996, Mr. Reese was a Senior Vice
President--Marketing/Advertising of Home/Quarters Warehouse, Inc., a home
improvement retailer. Prior thereto, from February 1988 to October 1994, he
was Senior Vice President--Marketing/Advertising of Ernst Home Centers, Inc.,
a hardware and home improvement retailer.
John Saar has been Vice President--Operations Support since January 1996.
From January 1995 to January 1996, he was Vice President--Regional Manager of
the Company for the Northwest Region. From June 1993 to January 1995, he was
Vice President--Human Resources of the Company and from December 1990 to June
1993, he was the Regional Manager of the Company for the Southwest Region.
Robert Shortt has been Vice President--Merchandising and Marketing of the
Company since April 1996. From April 1995 to April 1996, Mr. Shortt was Vice
President of Marketing for the Price Pfister division of Black & Decker Corp.
From March 1993 to April 1995, Mr. Shortt was Vice President of Marketing of
the Kwikset division of Black & Decker Corp. Prior thereto, from March 1991 to
March 1993, he was Director of Marketing of Kwikset division of Black & Decker
Corp.
Henry Torres has been Vice President--Information Systems and Re-Engineering
of the Company since February 1996. From September 1995 to February 1996, Mr.
Torres was Vice President of Re-Engineering. From December 1993 to September
1995, Mr. Torres was Director of Re-Engineering of the Company. Prior thereto,
from April 1989 to December 1993, Mr. Torres held various executive positions
for Sam's Club/Wal-Mart Stores, Inc., a discount retailer.
38
<PAGE>
Don Watson has been the Company's Vice President--Finance, Controller and
Treasurer since April 1993. From June 1988 to March 1993, he was Vice
President and Controller of the Company.
James Lieb has been a director of the Company since July 1994. Mr. Lieb
previously served as a director of the Company from March 1992 until June
1992. Since October 1995, Mr. Lieb has served as Executive Vice President of
The Trump Group. From August 1988 to October 1995, Mr. Lieb was Senior Vice
President of The Trump Group.
Robert Smith has been a director of the Company since June 1996. Mr. Smith
is also a Protector of Carmel (see "Principal Stockholders"). Mr. Smith has
served as President of Newmark Capital Limited, a private investment and
consulting company since March 1992. Prior thereto, from August 1989, he
served as Chief Executive Officer of First Hungarian Investment Advisory Rt.,
an investment management company. Mr. Smith also serves as Chairman of Becet
International, a Kazakhstan cellular telephone company, and is on the boards
of directors of a number of other companies, including Rogers Cantel Mobile
Communications Inc. and Petersburg Long Distance Inc.
COMPENSATION OF DIRECTORS
Each non-employee member of the Board of Directors will receive an annual
retainer fee and a fee for each meeting of the Board of Directors or a
committee thereof attended. The amounts of such fees will be determined at the
time that such non-employee directors are appointed to the Board of Directors.
Such directors will also be reimbursed for expenses incurred in attending
meetings. The annual retainer and meeting fees will be paid in shares of
Common Stock. See "--Stock Based Plans--Director Stock Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a compensation committee during fiscal 1995. Jules
Trump and Eddie Trump each participated in deliberations concerning executive
officer compensation. Upon the appointment of independent members of the Board
of Directors, the Company intends to establish a compensation committee a
majority of the members of which will consist of such independent directors.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors.
39
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
or accrued by the Company for services rendered during fiscal 1995 to the
Company's Chief Executive Officer and the Company's four other most highly
compensated executive officers ("Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
NAME AND ------------ ALL OTHER
PRINCIPAL POSITION SALARY COMPENSATION
------------------ ------------ ------------
<S> <C> <C>
Jules Trump.......................................... $350,000 $6,193(1)
Co-Chairman of the Board and Chief Executive Officer
James Bazlen......................................... 350,000 2,399(2)
President, Chief Operating Officer and Chief
Financial Officer(6)
Arthur Hicks......................................... 220,000 1,962(3)
Executive Vice President-Store Operations(6)
William Stapleton.................................... 180,000 2,313(4)
Former Senior Vice President-Information Systems(6)
James Schoenberger................................... 156,000 3,065(5)
Former Vice President-Advertising
</TABLE>
- --------
(1) Represents reimbursement of medical expenses in excess of insurance
coverage provided by the Company and insurance premiums paid by the
Company with respect to term life insurance covering Mr. Trump.
(2) Represents insurance premiums paid by the Company with respect to term
life insurance covering Mr. Bazlen and contributions made by the Company
to its Retirement Program based upon Mr. Bazlen's contributions.
(3) Represents insurance premiums paid by the Company with respect to term
life insurance covering Mr. Hicks and contributions made by the Company to
its Retirement Program based upon Mr. Hicks' contributions.
(4) Represents insurance premiums paid by the Company with respect to term
life insurance covering Mr. Stapleton and contributions made by the
Company to its Retirement Program based upon Mr. Stapleton's
contributions.
(5) Represents reimbursement of medical expenses in excess of insurance
coverage provided by the Company, insurance premiums with respect to term
life insurance covering Mr. Schoenberger and contributions made by the
Company to its Retirement Program based upon Mr. Schoenberger's
contributions.
(6) See "Management--Equity Participation Agreements."
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Jules Trump,
James Bazlen and Arthur Hicks pursuant to which they are earning annual base
salaries of $400,000, $350,000 and $220,000, respectively. The agreements do
not contain stated termination dates but rather are terminable at will by
either party. If the Company terminates the employment agreements of Messrs.
Trump, Bazlen or Hicks without cause, the agreements provide that the Company
will continue to pay the individual so terminated at a rate equal to his
annual base salary then in effect for a period of one year from the
termination.
RETIREMENT PROGRAM
The Company sponsors the CSK Auto, Inc. Retirement Program (the "Retirement
Program"), a defined contribution plan that is qualified under Section 401(k)
of the Internal Revenue Code of 1986, as amended (the "Code"). Participation
in the Retirement Program is voluntary and available to any employee, after
one year of employment, who is 21 years of age. Each participant can elect to
contribute up to 15% of his compensation on a pre-tax basis, subject to the
legal maximum of $9,500 per individual. In accordance with the provisions of
the
40
<PAGE>
Retirement Program, the Company may elect to make matching contributions to
the Retirement Program. For calendar year 1995, the Company matched 20% of the
first 6% of compensation contributed by each participant for the year.
Contributions to the Retirement Program and Retirement Program earnings are
fully vested. The Company made matching contributions of approximately
$267,000 to all Retirement Program participants in fiscal 1995.
INCENTIVE COMPENSATION PLAN
In May 1996, the Company instituted a general and administrative staff
incentive compensation bonus plan (the "Incentive Plan"). The Incentive Plan
is administered by the Chief Executive Officer of the Company. It is in effect
during the Company's 1996 fiscal year. The Incentive Plan is designed to
reward eligible Company executives, managers and supervisors for the
achievement of pre-defined Company performance objectives. Generally,
employees at the supervisor level or above are eligible to participate in the
Incentive Plan. At the beginning of the plan period, a financial goal for the
Company is established by the Chief Executive Officer. Depending on the
percentage of the financial goal which is met, a percentage of each eligible
employee's base salary will be paid as a bonus. Bonus awards are determined by
multiplying an eligible employee's base salary by a pre-determined,
corresponding percentage which is based on the amount of the financial goal
achieved by the Company. Bonus payments are made semi-annually and are pro-
rated if an employee has not been employed continuously by the Company during
the fiscal year.
EQUITY PARTICIPATION AGREEMENTS
The Company has, over time, entered into equity participation agreements
with certain of its executives as a form of incentive compensation. As
presently in effect, such agreements provide that Messrs. Bazlen, Hicks and
Stapelton, as well as four other current executive officers who are not Named
Executive Officers, own maximum participation interests equal, in the
aggregate, to 6.4% of the Common Stock held by Holdings immediately prior to
the Offering. The agreements provide that if the respective individual's
participation interest has vested, such individual would earn a cash payment
payable by the Company equal to the product of their vested participation
interest and the consideration received (up to a maximum of $12.75 per equity
participation share equivalent) in respect of one or more of the following:
(i) the sale of substantially all of the assets of the Company to an
unaffiliated entity, (ii) the merger of the Company with an unaffiliated
entity where the stockholders of the Company prior to the merger are not the
holders of a majority of the voting stock of the merged entity, or (iii) a
public or private sale of the Company's Common Stock by CSK Holdings, Ltd. (or
of the stock of CSK Holdings, Ltd. or any direct or indirect parent of CSK
Holdings, Ltd. by its respective direct or indirect parent) to an unaffiliated
entity. Payments to be made pursuant to the agreements are generally based
upon a percentage relating to the individuals' vested portion of his
participation interest. In the event of a sale of Common Stock by CSK
Holdings, Ltd. (or of the stock of CSK Holdings, Ltd. or any direct or
indirect parent of CSK Holdings, Ltd. by its respective direct or indirect
parent), however, the payments (up to an aggregate of $24 million for all such
individuals) are to be adjusted based upon the percentage of such
stockholder's holdings in the Company that is being sold. Except in the case
of a sale of the Company's Common Stock by CSK Holdings, Ltd., in which case
payments are to be made within 30 days of such sale, all payments under the
agreements are to be made over a one year period from the date of the event
triggering the payments (the "Triggering Event") and are conditioned upon the
individual remaining employed by the Company for at least one year from the
Triggering Event. Mr. Bazlen has a four percent participation interest and Mr.
Hicks has a one percent participation interest, each of which is fully vested.
STOCK BASED PLANS
The Company has adopted a variety of stock based compensation plans designed
to attract and retain employees (including officers and directors who are
employees), non-employee directors and consultants of the Company, and to
generally encourage superior performance by the Company's management,
employees and consultants at all levels of the Company's organization. These
plans, which include (i) the 1996 Management Stock Purchase Plan (the
"Management Stock Purchase Plan"), (ii) the 1996 Employee Stock Option Plan
(the
41
<PAGE>
"Employee Stock Option Plan"), (iii) the 1996 Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan") and (iv) the 1996 Director Stock Plan
(the "Director Stock Plan", and together with the Management Stock Purchase
Plan, the Employee Stock Option Plan and the Employee Stock Purchase Plan,
collectively, the "Stock Based Plans"), are also intended to align the
interests of directors, officers, employees and consultants with those of the
Company's stockholders. The aggregate shares reserved for issuance under the
Company's Stock Based Plans represent approximately 13.1% of the shares of
Common Stock outstanding after the Offering. The number of shares issued
pursuant to such plans will depend upon the degree to which awards are made or
exercised and the degree to which shares are purchased by participants.
Options to purchase 3,584,052 shares of Common Stock granted under the
Employee Stock Option Plan are outstanding, of which options for 2,118,000
shares of Common Stock are currently exercisable at $12.75 per share.
Following the Offering, the Stock Based Plans will be administered by the
Compensation Committee of the Board of Directors, consisting of not less than
two members (the "Committee"). The Committee will comply with the requirements
for an exemption under Rule 16b-3 under the Exchange Act as then in effect.
The Company also intends to comply with the requirements of Section 162(m) of
the Code, as amended, if possible, without limiting the powers granted under
the particular Stock Based Plans, to the extent it is not inconsistent with
the Company's goals. The Committee can make such rules and regulations and
establish such procedures for the administration of each Stock Based Plan as
it deems appropriate. The description of the Stock Based Plans set forth
herein is qualified in its entirety by reference to the texts of the
respective Stock Based Plans, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
Management Stock Purchase Plan. The number of shares of Common Stock
reserved for issuance under the Management Stock Purchase Plan is 250,000
shares, subject to adjustment to reflect stock splits, stock dividends,
recapitalizations and similar transactions.
The participants in the Management Stock Purchase Plan will consist of all
Company officers and such employees of the Company and the Company's
subsidiaries and parent as are participants in the Company's Incentive Plan.
Although the Management Stock Purchase Plan and the Incentive Plan are
separate plans, the same individuals participate in each plan. Each
participant will at his or her election be permitted to receive up to 100% of
the annual incentive bonus, if any, earned by the participant under the
Incentive Plan (less certain payroll deductions) in the form of restricted
shares of Common Stock ("Restricted Shares") under the Management Stock
Purchase Plan at 85% of their fair market value on the date such restricted
shares are issued.
No shares may be purchased under the Management Stock Purchase Plan prior to
completion of the Offering.
The restricted period for Restricted Shares purchased under the Management
Stock Purchase Plan will be one year from the date of purchase. The Restricted
Shares cannot be sold during the restricted period.
No rights under the Management Stock Purchase Plan are transferable other
than by will or the laws of descent and distribution, and may be exercised
during the holder's lifetime only by him or her. A participant may designate a
beneficiary to receive any payments to be made to the participant which are
due after his or her death.
The Company, its subsidiaries or its parent may withhold cash and/or shares
of Common Stock equal to the amount necessary to satisfy its obligation to
withhold taxes or other amounts. Alternatively, the Company may require the
holder to pay to the Company such amount, in cash, promptly upon demand.
No rights may be granted under the Management Stock Purchase Plan after June
30, 2006. The Committee may at any time terminate or amend the Management
Stock Purchase Plan; provided, however, that without the approval of the
Company's stockholders, no amendment may be made that would (a) except as a
result of equitable adjustments set forth in the Management Stock Purchase
Plan, increase the maximum number of shares for which options may be granted,
(b) materially increase the benefits accruing to participants under the
Management Stock Purchase Plan, or (c) change the eligibility requirements for
persons who may participate.
42
<PAGE>
No termination or amendment may materially adversely affect the rights of a
holder of existing rights under the Management Stock Purchase Plan without
such holder's consent.
The following is a general summary of the federal income tax consequences
under current tax law of transactions under the Management Stock Purchase
Plan. It does not purport to cover all of the special rules that may apply, or
the state or local income or other tax consequences inherent in the ownership
and disposition of such shares.
A participant generally must include as ordinary income the fair market
value of the Restricted Shares (less any amount paid for such stock) at the
earlier of the time such Restricted Shares are either transferable or no
longer subject to a substantial risk of forfeiture (the "forfeiture period")
within the meaning of Section 83 of the Code. Any participant can elect
pursuant to Section 83(b) of the Code to include as ordinary income, in the
year of transfer of the Restricted Shares by the Company to such person, an
amount equal to the fair market value of the Restricted Shares (less any
amounts paid for such stock) on the date of such transfer (as if the
Restricted Shares were unrestricted and could be sold immediately); such an
election must be made within 30 days of the date of such transfer. A
participant's tax basis in Restricted Shares is equal to the amount paid for
such stock plus the amount includable in income with respect to such
Restricted Shares. With respect to the sale of Restricted Shares after the
expiration of the forfeiture period, any gain or loss will generally be
treated as long-term or short-term capital gain or loss, depending on the
holding period. The holding period for capital gains treatment will begin when
the forfeiture period expires, unless the participant has made a Section 83(b)
election, in which event the holding period will commence just after the date
of transfer of the Restricted Shares by the Company to such person. The
Company generally will be entitled to a deduction in the amount of a
participant's ordinary income at the time such income is recognized.
Employee Stock Option Plan. The number of shares of Common Stock initially
reserved for issuance upon exercise of options that may be granted under the
Employee Stock Option Plan is 4,300,000 shares, subject to adjustment to
reflect stock splits, stock dividends, recapitalizations and similar
transactions.
Options may be granted to employees (including officers and directors who
are employees) of, and to consultants to, the Company, its subsidiaries or its
parent. Upon expiration, cancellation or termination of unexercised options,
the shares of the Company's Common Stock subject to such options will again be
available for the grant of options under the Employee Stock Option Plan.
Options granted under the Employee Stock Option Plan may either be incentive
stock options ("ISOs"), within the meaning of Section 422 of the Code, or
nonqualified stock options which do not qualify as ISOs ("NQSOs"). ISOs,
however, may only be granted to employees.
Among other things, the Committee is empowered to determine, within the
express limits contained in the Employee Stock Option Plan: the employees and
consultants to be granted options, whether an option granted to an employee is
to be an ISO or a NQSO, the number of shares of Common Stock to be subject to
each option, the exercise price of each option, the term of each option, the
date each option shall become exercisable as well as any terms, conditions or
installments relating to the exercisibility of each option, whether to
accelerate the date of exercise of any option or installment, the form of
payment of the exercise price, the amount, if any, required to be withheld
with respect to an option, and with the consent of the optionee, to modify an
option. The Committee is also authorized to prescribe, amend and rescind rules
and regulations relating to the Employee Stock Option Plan and to make all
other determinations necessary or advisable for administering the Employee
Stock Option Plan, and to construe each stock option contract ("Contract")
entered into by the Company with an optionee under the Employee Stock Option
Plan.
The exercise price of each option will be determined by the Committee;
provided, however, that the exercise price of an ISO may not be less than the
fair market value of the Company's Common Stock on the date of grant (110% of
such fair market value if the optionee owns (or is deemed to own) more than
10% of the voting power of the Company, its subsidiaries or its parent). The
exercise price of each option is payable in full upon exercise
43
<PAGE>
or, if the applicable Contract permits, in installments. Payment of the
exercise price of an option may be made in cash, or, if the applicable
Contract permits, in cash, in shares of the Company's Common Stock or any
combination thereof.
Options may be granted for terms determined by the Committee; provided,
however, that the term of an ISO may not exceed 10 years (5 years if the
optionee owns (or is deemed to own) more than 10% of the voting power of the
Company, its subsidiaries or its parent).
The maximum number of shares of the Company's Common Stock for which options
may be granted to an employee in any fiscal year of the Company is 1,250,000.
In addition, the aggregate fair market value of shares with respect to which
ISOs may be granted to an employee which are exercisable for the first time
during any calendar year may not exceed $100,000.
Options may not be transferred other than by will or the laws of descent and
distribution, and may be exercised during the optionee's lifetime only by him
or her.
Except as may otherwise be provided in the applicable Contract, if the
optionee's relationship with the Company, its subsidiaries or its parent as an
employee or consultant is terminated for any reason (other than the death or
disability of the optionee), the option may be exercised, to the extent
exercisable at the time of termination of such relationship, within three
months thereafter, but in no event after the expiration of the term of the
option. However, if the relationship was terminated either for cause ("cause"
being defined generally as fraud, embezzlement or gross negligence with
respect to the participant's duties) or without the consent of the Company,
the option will terminate immediately. In the case of the death of an optionee
while an employee or consultant (or, generally, within three months after
termination of such relationship, or within one year after termination of such
relationship by reason of disability), except as otherwise provided in the
Contract, his or her legal representative or beneficiary may exercise the
option, to the extent exercisable on the date of death, within one year after
such date, but in no event after the expiration of the term of the option.
Except as may otherwise be provided in the applicable Contract, an optionee
whose relationship with the Company, its subsidiaries or its parent was
terminated by reason of his or her disability may exercise the option, to the
extent exercisable at the time of such termination, within one year
thereafter, but not after the expiration of the term of the option. Options
are not affected by a change in the status of an optionee so long as he
continues to be an employee of, or a consultant to, the Company, its
subsidiaries or its parent.
The Company, its subsidiaries or its parent may withhold cash and/or shares
of the Company's Common Stock having an aggregate value equal to the amount
which the Company determines is necessary to meet its obligations to withhold
any federal, state and/or local taxes or other amounts incurred by reasons of
the grant or exercise of an option, its disposition or the disposition of
shares acquired upon the exercise of the option. Alternatively, the Company
may require the optionee to pay the Company such amount, in cash, promptly
upon demand.
No ISO may be granted under the Stock Option Plan after June 30, 2006. The
Committee may at any time terminate or amend the Employee Stock Option Plan;
provided, however, that without the approval of the Company's stockholders, no
amendment may be made which would (a) except as a result of equitable
adjustments set forth in the Employee Stock Option Plan, increase the maximum
number of shares available for the grant of options or increase the maximum
number of options that may be granted to an employee in any fiscal year, (b)
materially increase the benefits accruing to participants under the Employee
Stock Option Plan, or (c) change the eligibility requirements for persons who
may participate. No termination or amendment may materially adversely affect
the rights of an optionee with respect to an outstanding option without the
optionee's consent.
The following is a general summary of the federal income tax consequences
under current tax law of NQSOs and ISOs. It does not purport to cover all of
the special rules, including those relating to the exercise of
44
<PAGE>
an option with previously-acquired shares, or the state or local income or
other tax consequences inherent in the ownership and exercise of stock options
and the ownership and disposition of the underlying shares.
An optionee will not recognize taxable income for federal income tax
purposes upon the grant of a NQSO or an ISO.
Upon the exercise of a NQSO, the optionee will recognize ordinary income in
an amount equal to the excess, if any, of the fair market value of the shares
acquired on the date of exercise over the exercise price thereof, and the
Company will generally be entitled to a deduction for such amount at that
time. If the optionee later sells shares acquired pursuant to the exercise of
a NQSO, he or she will recognize long-term or short-term capital gain or loss,
depending on the period for which the shares were held. Long-term capital gain
is generally subject to more favorable tax treatment than ordinary income or
short-term capital gain. Proposed legislation would treat long-term capital
gain even more favorably. There can be no assurance, however, that such
proposed legislation will be enacted.
Upon the exercise of an ISO, the optionee will not recognize taxable income.
If the optionee disposes of the shares acquired pursuant to the exercise of an
ISO more than two years after the date of grant and more than one year after
the transfer of the shares to him or her, the optionee will recognize long-
term capital gain or loss and the Company will not be entitled to a deduction.
However, if the optionee disposes of such shares within the required holding
period, all or a portion of the gain will be treated as ordinary income and
the Company will generally be entitled to deduct such amount.
In addition to the federal income tax consequences described above, an
optionee may be subject to the alternative minimum tax, which is payable to
the extent it exceeds the optionee's regular tax. For this purpose, upon the
exercise of an ISO, the excess of the fair market value of the shares over the
exercise price therefor is an adjustment which increases alternative minimum
taxable income. In addition, the optionee's basis in such shares is increased
by such excess for purposes of computing the gain or loss on the disposition
of the shares for alternative minimum tax purposes. If an optionee is required
to pay an alternative minimum tax, the amount of such tax which is
attributable to deferral preferences (including the ISO adjustment) is allowed
as a credit against the optionee's regular tax liability in subsequent years.
To the extent the credit is not used, it is carried forward.
Options to purchase 100,000, 100,000, 1,212,000, 307,000 and 100,000 shares
of Common Stock were issued to Jules Trump, Eddie Trump, James Bazlen, Arthur
Hicks and James Lieb, respectively, during June 1996. An additional aggregate
of 1,563,052 options were issued to other employees of the Company and 202,000
options were issued to William Stapelton, a former officer of the Company
outside of the Employee Stock Option Plan to satisfy certain Company
obligations under his employment arrangement. Of the foregoing options, an
aggregate of 2,118,000 options granted to the individuals named above and two
additional current officers (neither of whom are Named Executive Officers) are
currently exercisable. Of the remaining options, 1,339,802 vest over five
years commencing three years after the date of their grant and 126,250 have
varying vesting schedules. All outstanding options have a term of ten years
and are exercisable at a price of $12.75 per share (which represented the fair
market value of the Company's Common Stock on the date such options were
granted.) Based upon the difference between the exercise price of such options
and the midrange of the assumed initial public offering price of $15.00 per
share, such options have an aggregate current value of $8.0 million.
Employee Stock Purchase Plan. The Employee Stock Purchase Plan is intended
to qualify as an employee stock purchase plan under Section 423 of the Code.
Under the Employee Stock Purchase Plan, the maximum number of shares of Common
Stock for which options may be granted is 250,000 shares, subject to
adjustment to reflect stock splits, stock dividends, recapitalizations and
similar transactions. No shares may be purchased under the Employee Stock
Purchase Plan prior to the completion of the Offering.
On the first day on which the principal market for the Common Stock is open
(the "Grant Date") in each calendar quarter during the term of the Employee
Stock Purchase Plan commencing on the completion of the Offering (an "Offering
Period"), participants are granted options to purchase such number of full
shares as may
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<PAGE>
be paid for from the participant's payroll deductions pursuant to the Employee
Stock Purchase Plan during such Offering Period, but not in excess of 1,000
shares in any Offering Period. The exercise price of each option (the "Option
Price") with respect to any Offering Period is equal to the lower of 85% of
the fair market value of the Common Stock subject thereto on the Grant Date or
85% of the fair market value of the Common Stock subject thereto on the last
day of the Offering Period on which the principal market for the Common Stock
is open (the "Exercise Date"). A participant pays the Option Price through
payroll deductions of 1% to 10% of the participant's compensation during the
Offering Period. For this purpose, "compensation" includes the gross amount of
his salary, wages, commissions, overtime pay and bonuses (without reduction
for withholding, contributions to the Company's Section 401(k) plan, amounts
excludable pursuant to Section 125 of the Code or non-qualified deferred
compensation). Notwithstanding the foregoing, no employee may be granted an
option under the Employee Stock Purchase Plan which permits him to purchase
shares of Common Stock having a fair market value greater than $25,000 in any
calendar year.
The Employee Stock Purchase Plan is open to any employee of the Company, its
subsidiaries or parent on the Grant Date, (a) who has been employed for at
least three months, (b) who does not own (including under certain rules of
constructive ownership) immediately before the Grant Date, shares possessing
5% or more of the total combined voting power or value of all classes of stock
of the Company. An eligible employee becomes a participant by filing the
prescribed election form at least 20 days prior to the beginning of the first
Grant Date for which it is effective electing to become a participant and
authorizing payroll deductions of a whole percentage of his compensation
between 1% and 10%. Participation in the Employee Stock Purchase Plan
continues until the employee withdraws from the Employee Stock Purchase Plan
or ceases to be employed by the Company, its subsidiaries or parent. All
employees have the same rights and privileges under the Employee Stock
Purchase Plan, except that (subject to the foregoing) the number of shares of
Common Stock which may be purchased by a participant bear a uniform
relationship to their compensation.
A participant's option will automatically be exercised on the Exercise Date
by purchasing the number of whole shares that the amount of payroll deductions
for this purpose that were credited to his account will purchase at the Option
Price, subject to the limitations described above. Shares acquired pursuant to
the Employee Stock Purchase Plan cannot be sold before the first anniversary
of the Exercise Date with respect to such shares.
Notwithstanding a prior election with respect to a specific Offering Period,
a participant may withdraw from the Employee Stock Purchase Plan at any time
upon at least 20 days notice prior to the Exercise Date. In such event, all of
the participant's payroll deductions under the Employee Stock Purchase Plan
with respect to such Offering Period will be refunded, without interest.
Withdrawal in any Offering Period does not affect the employee's eligibility
to participate in the Employee Stock Purchase Plan in any subsequent Offering
Period, although a new election form must be filed. The termination of a
participant's employment is treated as the participant's withdrawal from the
Employee Stock Purchase Plan effective on such date without regard to the 20-
day notice period. A participant may change the amount deducted from his
compensation for purposes of the Employee Stock Purchase Plan by filing a new
election at least 20 days prior to the first Grant Date for which it is to be
effective.
Any amount deducted from a participant's payroll for purposes of the
Employee Stock Purchase Plan is an asset of the Company subject to the claims
of its creditors. The participant is only an unsecured general creditor with
respect to such amount.
No option or any rights under the Employee Stock Purchase Plan are
transferable other than by will or the laws of descent and distribution, and
may be exercised during the holder's lifetime only by him or her. A
participant may designate a beneficiary to receive any payments to be made to
the participant which are due after his or her death.
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<PAGE>
The Company, its subsidiaries or its parent may withhold cash and/or shares
of Common Stock equal to the amount necessary to satisfy its obligation to
withhold taxes or other amounts. Alternatively, the Company may require the
holder to pay to the Company such amount, in cash, promptly upon demand.
No option may be granted under the Employee Stock Purchase Plan after June
30, 2006. The Committee may at any time terminate or amend the Employee Stock
Purchase Plan; provided, however, that without the prior approval of a
majority of the Company's stockholders, no amendment may be made which would
(a) except as a result of equitable adjustments set forth in the Employee
Stock Purchase Plan, increase the maximum number of shares for which options
may be granted, (b) materially increase the benefits to participants under the
Employee Stock Purchase Plan, (c) change the eligibility requirements for
persons who may participate in the Employee Stock Purchase Plan or (d) effect
any change inconsistent with Section 423 of the Code or regulations issued
thereunder. No termination or amendment may materially adversely affect the
rights of a holder of an existing option without such holder's consent.
The following is a general summary of the federal income tax treatment under
current law of options under the Employee Stock Purchase Plan and disposition
of the shares acquired pursuant to such Plan. It does not purport to cover all
of the special rules that may apply, or the state or local income or other tax
consequences inherent in the ownership and exercise of options and the
ownership and disposition of the underlying shares.
No income is recognized by a participant upon the grant or exercise of an
option pursuant to the Employee Stock Purchase Plan.
If a participant disposes of shares of Common Stock that were purchased
pursuant to the Employee Stock Purchase Plan and held for at least two years
after the Grant Date and one year after the Exercise Date, or dies holding the
shares (however long they were held), the participant will recognize ordinary
compensation income in the year of disposition or death in an amount equal to
the lesser of (a) the excess of the fair market value of the stock on the date
of disposition or death over the Option Price therefor or (b) the excess of
the fair market value of the stock on the Grant Date over the Option Price
therefor. Any additional gain recognized will be long-term capital gain. If
the sale price is less than the Option Price, the participant will not
recognize any ordinary income, and will have a long-term capital loss. The
Company is not entitled to any deduction. However, the participant disposes of
such shares within the required holding period all or a portion of the gain
will be treated as ordinary income and the Company will generally be entitled
to deduct such amount.
Long-term capital gains are generally subject to more favorable tax
treatment than ordinary income or short-term capital gains. Proposed
amendments would make such treatment even more favorable, although there can
be no assurance that any such proposal will be enacted.
Director Stock Plan. The number of shares of Common Stock initially reserved
for issuance under the Director Stock Plan is 50,000 shares, subject to
adjustment to reflect stock splits, stock dividends, recapitalizations and
similar transactions.
The participants in the Director Stock Plan will consist of all of the
directors of the Company who are not officers or employees of the Company or
any of its affiliates. Each participant will receive all of his or her annual
retainer in the form of Restricted Shares paid in four installments at the
beginning of each calendar quarter and all of his or her meeting fees in the
form of Restricted Shares paid at the end of the calendar quarter in which the
meetings occurred. The restrictions on such Restricted Shares will lapse one
year from the date of grant. The stock cannot be sold during the restricted
period. The total number of Restricted Shares included in each grant will be
determined by dividing one-quarter of the participant's retainer by the fair
market value of one share of Common Stock on the first business day of each
calendar quarter. With respect to the meeting fees, the total number of shares
of Restricted Shares included in each grant will be determined by dividing the
participant's meeting fees for the calendar quarter by the fair market value
of one share of Common Stock on the last business day of the calendar quarter.
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<PAGE>
No grant can be made under the Director Stock Plan after June 30, 2006.
Holdings of Restricted Shares acquired prior thereto, however, can extend
beyond such date, and the provisions of the Director Stock Plan will continue
to apply thereto. The Board of Directors may at any time terminate or amend
the Director Stock Plan; provided, however, that without the approval of the
Company's stockholders, no amendment may be made that would (a) except as a
result of equitable adjustments set forth in the Director Stock Plan, increase
the maximum number of shares available for purchase, (b) materially increase
the benefits accruing to participants under the Director Stock Plan, or (c)
change the eligibility requirements for persons who may participate. No
termination or amendment may materially adversely affect the rights of a
participant with respect to outstanding rights under the Director Stock Plan
without such participant's consent.
The following is a general summary of the federal income tax consequences
under current tax law of transactions under the Director Stock Plan. It does
not purport to cover all of the special rules that may apply or the state or
local or other tax consequences inherent in the ownership and deposition of
such shares.
A participant generally must include as ordinary income the fair market
value of the Restricted Stock at the earlier of the time such Restricted
Shares are either transferable or no longer subject to a substantial risk of
forfeiture (the "forfeiture period") within the meaning of Section 83 of the
Code (including any period during which such participant will be subject to
potential liability under Section 16(b)). Any participant can elect pursuant
to Section 83(b) of the Code to include as ordinary income, in the year of
transfer of the Restricted Shares by the Company to such person, as amount
equal to the fair market of the Restricted Shares on the date of such transfer
(as if the Restricted Shares were unrestricted and could be sold immediately);
such an election must be made within 30 days of the date of such transfer. A
participant's tax basis in Restricted Shares is equal to the amount includible
in income with respect to such Restricted Shares. With respect to the sale of
Restricted Shares after the expiration of the forfeiture period, any gain or
loss will generally be treated as long-term or short-term capital gain or
loss, depending on the holding period. The holding period for capital gains
treatment will begin when the forfeiture period expires, unless the
participant has made a Section 83(b) election, in which event the holding
period will commence just after the date of transfer of the Restricted Shares
by the Company to such person. The Company generally will be entitled to a
deduction in the amount of a participant's income at the time such income is
recognized.
CERTAIN TRANSACTIONS
In October 1989, the Company entered into a nine year lease for its
corporate headquarters in Phoenix, Arizona, with an unaffiliated landlord. The
lease relates to approximately 78,577 square feet and provides for a current
base rent of approximately $1.4 million per year. During January 1994,
Missouri Falls Holdings Corp., an affiliate of the Company, acquired an
interest in the partnership ("Missouri Falls Partners") which acquired the
building and assumed the lease between the Company and the former landlord. In
April 1995, the Company assumed a lease between a former tenant and Missouri
Falls Partners for approximately 11,680 square feet of additional office space
at a current lease rent of $148,958 per year. Such lease expires in April
1998. Additionally, the Company rents approximately 7,766 square feet of
additional space at these premises on a month-to-month basis for an annual
rental of $97,075.
TransAtlantic Finance, Inc. ("Finance"), an indirect wholly-owned subsidiary
of Carmel, was owed, as of the date hereof, the sum of approximately $3.7
million by the Company. The Company's obligation which was incurred in
connection with the purchase of product from two of its vendors was
subsequently transferred. At the time of such transfers, the Company owed the
sum of approximately $16.5 million (less anticipated discounts of
approximately $0.8 million) to the vendors, since reduced by prepayments. The
Company's obligation to Finance is non-interest bearing and matures on
December 31, 1996. The amount due is to be reduced, if further prepaid, by an
amount equal to $1,038 multiplied by the number of days prior to December 31,
1996 that payment in full is made to Finance. See Note 2 to Consolidated
Financial Statements.
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<PAGE>
TransAtlantic Realty, Inc. ("Realty"), another indirect wholly-owned
subsidiary of Carmel, entered into a series of sale-leaseback transactions
with the Company with respect to various real property and fixtures between
October 1995 and June 1996. The total funding provided by Realty in these
transactions was approximately $16.0 million, which represented the cost of
such assets to the Company. The real property leases (approximately $12.1
million) provide for a term of 20 years (with renewal options for an
additional 20 years). The annual rent during the initial term of each lease is
10% of the sale proceeds paid by Realty and during any option period is to be
fair market rent. The Company has the right to terminate each lease at the end
of its tenth year by purchasing the property covered by the lease from Realty
for fair market value. The fixture leases (approximately $3.9 million) provide
for a term of five years at a 10% rate with an estimated residual of 10% at
the end of the lease. The Company has replaced approximately $7.8 million of
the real property sale-leasebacks and $3.9 million of the fixture sale-
leasebacks with similar arrangements with unrelated third parties where the
proceeds of the replacement transactions received by Realty were used to enter
into additional sale-leaseback transactions with the Company on substantially
similar terms as the original sale-leasebacks. The terms of the replacement
transactions were set in arms-length negotiations although generally not as
favorable to the Company as the original sale-leasebacks entered into with
Realty. The Company intends to continue to replace sale-leasebacks with its
affiliates, the proceeds of which may or may not be used by Realty to enter
into new sale-leaseback arrangements with the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and Note 2 to Consolidated Financial
Statements.
CSK Group, Ltd. ("CSK"), the parent corporation of Holdings, is owed
approximately $15.5 million pursuant to the Company's non-interest bearing
promissory note dated July 24, 1996 which is due on December 27, 1996. The
promissory note was issued to CSK to evidence a loan by CSK to the Company, in
the amount of $15.0 million, the proceeds of which were used for the payment
of vendors.
During November 1993, a former affiliate of the Company was sold by Holdings
to an independent third party. At the time of the sale, the Company was owed
$11.4 million for management and support services provided to the former
affiliate. In connection with the November 1993 sale, Holdings assumed the
$11.4 million obligation owed to the Company of which it subsequently paid
approximately $8.4 million. The Company has since cancelled the balance of
$3.0 million. See Note 2 to Consolidated Financial Statements.
The taxable income and losses of the Company and its subsidiaries (the
"Company Group") will be included in the consolidated federal income tax
returns filed by CSK Group, Ltd. The Company and/or certain subsidiaries may
also be included in certain state income tax returns filed by CSK Group, Ltd.
(or its affiliates). Prior to the completion of the Offering, each member of
the Company Group and CSK Group, Ltd. will enter into a Tax Sharing Agreement
(the "Tax Sharing Agreement") that will require the Company to pay CSK Group,
Ltd. an amount equal to the amount of the federal and state income taxes that
the Company Group would have been required to pay if the Company Group filed
its own separate tax returns and was never part of the CSK Group Ltd. tax
returns. On the other hand, the Company will be paid for any tax attributes of
the Company or its subsidiaries that are used to reduce the tax that would
otherwise be paid by CSK Group Ltd. and its other subsidiaries. See Note 9 to
Consolidated Financial Statements.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning beneficial
ownership of Common Stock as of June 30, 1996, and as adjusted to give effect
to the sale of the shares of Common Stock offered hereby by (i) each person
which is a beneficial owner of more than 5% of the outstanding Common Stock,
(ii) each director of the Company, (iii) each current Named Executive Officer
and (iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
BENEFICIAL OWNER PRIOR TO OFFERING AFTER OFFERING
------------------- ----------------------------------------------------------------------
NUMBER PERCENT NUMBER PERCENT
--------------- ---------------------------- -------------
<S> <C> <C> <C> <C>
Carmel Trust............ 30,300,000(1) 99.9% 30,300,000(1) 81.8%
c/o Sonnenschein Nath &
Rosenthal
Suite 8000, Sears Tower
2335 Wacker Drive
Chicago, Illinois 60606
Jules Trump............. 100,000(1)(2) 0.3 100,000(1)(2) 0.3
c/o CSK Auto, Inc.
645 E. Missouri Avenue
Phoenix, Arizona 85012
Eddie Trump............. 100,000(1)(2) 0.3 100,000(1)(2) 0.3
c/o CSK Auto, Inc.
645 E. Missouri Avenue
Phoenix, Arizona 85012
James G. Bazlen......... 1,212,000(2) 3.8 1,212,000(2) 3.1
c/o CSK Auto, Inc.
645 E. Missouri Avenue
Phoenix, Arizona 85012
James Lieb.............. 100,000(2) 0.3 100,000(2) 0.3
c/o CSK Auto, Inc.
645 E. Missouri Avenue
Phoenix, Arizona 85012
Robert Smith............ -- (1) -- -- (1) --
c/o Sonnenschein Nath &
Rosenthal
Suite 8000, Sears Tower
2335 Wacker Drive
Chicago, Illinois 60606
Arthur S. Hicks......... 307,000(3) 1.0 307,000(3) 0.8
c/o CSK Auto, Inc.
645 E. Missouri Avenue
Phoenix, Arizona 85012
All Executive Officers
and Directors as a
Group
(17 persons)........... 1,937,700(1)(4) 6.0 1,937,700(1)(4) 4.9
</TABLE>
- --------
(1) Such shares are directly or indirectly owned of record by CSK Holdings,
Ltd. which is wholly-owned by CSK Group, Ltd., which in turn is wholly
owned by Carmel, the Trustee of which is Cantrade Trust Company Limited.
The Agreement pursuant to which Carmel was established in 1977 (the
"Carmel Agreement") designates certain Protectors who must authorize any
action taken by the Trustee and who have the authority to discharge the
Trustee and to appoint substitute trustees. These Protectors are Saul
Tobias Bernstein, Gerrit Van Reimsdijk and Robert Smith (who is also a
director of the Company). These Protectors are not otherwise associated
with the Company or Carmel. The Carmel Agreement provides that Carmel
shall continue until 21 years after the death of the last survivor of the
descendants of certain persons living on the date it was established (the
"Carmel Term"). Certain members of the families of Jules Trump and Eddie
Trump (Co-Chairmen and directors of the Company) may appoint
beneficiaries, or themselves become beneficiaries (by appointment or at
the end of the Carmel Term without appointment). If there are no such
beneficiaries at the end of the Carmel Term, the assets of Carmel will be
paid out to certain charitable institutions. Jules Trump, Eddie Trump and
Robert Smith each disclaim beneficial ownership of such shares.
(2) Consists of shares issuable upon exercise of currently exercisable stock
options.
(3) Includes 303,000 shares issuable upon exercise of currently exercisable
stock options held by Mr. Hicks.
(4) Includes 1,916,000 shares issuable upon exercise of currently exercisable
stock options.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have outstanding an
aggregate of 37,021,700 shares of Common Stock, assuming (i) the issuance of
6,700,000 shares of Common Stock offered hereby, (ii) the issuance of
30,321,700 shares of Common Stock in the Merger and (iii) no exercise of
outstanding options to purchase Common Stock under any of the Company's
employee benefit plans. Of the total outstanding shares of Common Stock, only
the 6,700,000 shares of Common Stock sold in the Offering will be freely
tradeable without restriction or further registration under the Securities
Act, unless and to the extent purchased by "affiliates" of the Company, as
that term is defined in Rule 144 under the Securities Act (sales by whom would
be subject to certain volume limitations and other restrictions described
below).
The remaining shares of Common Stock held by Holdings and certain officers
and directors of the Company upon completion of the Offering will be
"restricted securities," as that term is defined in Rule 144 under the
Securities Act. In general, under Rule 144 as currently in effect, a person
(or persons whose shares are aggregated), including an affiliate, who has
beneficially owned shares for at least two years (including the holding period
of any prior owner except an affiliate) is entitled to sell in "broker's
transactions" or to market makers, within any three-month period commencing 90
days after the date of this Prospectus, a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock
(370,217 shares immediately after the Offering) or (ii) generally, the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale, and subject to
certain other limitations and restrictions. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the three
months preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least three years, would be entitled to sell such shares under
Rule 144(k) without regard to the volume and other requirements described
above.
The Company, Holdings and each officer and director of the Company owning
shares of Common Stock upon completion of the Offering each have agreed that,
without the prior consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, they will not offer, sell, contract to sell or otherwise dispose
of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock for a period of 180 days after
the date of this Prospectus, other than the sale of 6,700,000 shares of Common
Stock offered hereby (and the 1,005,000 shares which may be issued by the
Company pursuant to the over-allotment option granted to the Underwriters) and
the issuance of 2,118,000 shares upon exercise of currently exercisable stock
options. Upon expiration of such 180-day period, only the 6,700,000 shares of
Common Stock sold in the Offering will be eligible for immediate sale without
restriction under the Securities Act, and the remaining shares of Common Stock
outstanding on the date of this Prospectus will be eligible for sale only upon
compliance with the volume, timing and other requirements of Rules 144 and 145
promulgated under the Securities Act.
Prior to the Offering, there has not been any public market for securities
of the Company. No prediction can be made as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
additional amounts of Common Stock of the Company in the public market, or the
perception that such sales could occur, could adversely affect the prevailing
market price of the Common Stock.
THE MERGER
Prior to the completion of the Offering, NAC will merge with and into the
Company, a Delaware corporation recently formed for the sole purpose of
consummating the Merger and effecting the reincorporation of NAC as a Delaware
corporation, with the Delaware corporation surviving the Merger. As part of
the Merger, all of the outstanding shares of preferred stock and common stock
of NAC will be converted into an aggregate of 30,321,700 shares of Common
Stock of the Company. The 37,021,700 shares of Common Stock to be outstanding
after the Offering include the 30,300,000 shares of Common Stock issued in the
Merger, the
51
<PAGE>
6,700,000 shares of Common Stock offered hereby and 21,700 shares of Common
Stock issued to certain executive officers of the Company. Such officers of
the Company had purchased shares of common stock of NAC on June 22, 1996,
which shares will be converted into an aggregate of 21,700 shares of Common
Stock of the Company pursuant to the Merger at an effective purchase price of
$12.75 per share. In connection with the Merger, the Company and Holdings will
enter into a tax sharing agreement. See "Certain Transactions."
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of the Offering, the authorized capital stock of the
Company will consist of 75,000,000 shares of Common Stock, $.001 par value per
share and 10,000,000 shares of preferred stock, $.001 par value per share.
Prior to the Offering, Holdings and certain officers of the Company are the
only holders of the Company's Common Stock. The following description
summarizes certain information regarding the capital stock of the Company.
This information does not purport to be complete and is subject to the
applicable provisions of the Delaware General Corporation Law, as amended (the
"DGCL"), the Company's Certificate of Incorporation (the "Certificate of
Incorporation") and the Company's By-Laws (the "By-Laws").
COMMON STOCK
Upon consummation of the Offering, 37,021,700 shares of Common Stock will be
issued and outstanding. Each share of Common Stock entitles the holder thereof
to one vote on all matters submitted to a vote of stockholders, including the
election of directors. There is no cumulative voting in the election of
directors; consequently, the holders of a majority of the outstanding shares
of Common Stock can elect all of the directors then standing for election.
Holdings will own 81.8% of the outstanding Common Stock after the Offering.
Such control could have the effect of entrenching current management and
preventing a hostile takeover of the Company. See "--Business Combinations."
Subject to preferences that may be applicable to any outstanding shares of
preferred stock, holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. See "Dividend Policy."
Holders of Common Stock have no conversion, redemption or preemptive rights to
subscribe to any securities of the Company. All outstanding shares of Common
Stock are, and the shares to be sold in the Offering when issued and paid for
will be, fully paid and nonassessable. In the event of any liquidation,
dissolution or winding-up of the affairs of the Company, holders of Common
Stock will be entitled to share ratably in the assets of the Company remaining
after provision for payment of liabilities to creditors and the preferences,
if any, of holders of preferred stock. The rights and preferences of holders
of Common Stock are subject to the rights of the holders of any shares of
preferred stock which the Company may issue in the future.
PREFERRED STOCK
As of the date of this Prospectus, no shares of Preferred Stock were issued
or outstanding. The Company's Certificate of Incorporation authorizes the
Board of Directors, without further stockholder action, to issue Preferred
Stock in one or more series and to fix and determine the relative rights and
preferences thereof, including voting rights, dividend rights, liquidation
rights, redemption rights, redemption provisions, sinking fund provisions,
conversion rights and other rights. As a result, the Board of Directors could,
without stockholder approval, issue shares of Preferred Stock with voting,
conversion, dividend, liquidation, or other rights that could adversely affect
the holders of Common Stock and that could have the effect of delaying,
deferring, or preventing a change in control of the Company. The Company
currently has no plans or arrangements for the issuance of any Preferred
Stock.
LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation contains a provision which
eliminates the personal liability of a director to the Company and its
stockholders for certain breaches of his or her fiduciary duty of care as a
director. This provision does not, however, eliminate or limit the personal
liability of a director (i) for any breach of such
52
<PAGE>
director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under the DGCL statutory provision making
directors personally liable, under a negligence standard, for unlawful payment
of dividends or unlawful stock repurchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision offers persons who serve on the Board of Directors of the Company
protection against awards of monetary damages resulting from breaches of their
duty of care (except as indicated above), including grossly negligent business
decisions made in connection with takeover proposals for the Company. As a
result of this provision, the ability of the Company or a stockholder thereof
to successfully prosecute an action against a director for a breach of his
duty of care has been limited. However, the provision does not affect the
availability of equitable remedies such as an injunction or rescission based
upon a director's breach of his duty of care. The Commission has taken the
position that the provision will have no effect on claims arising under the
federal securities laws.
The Company's Certificate of Incorporation also provides that the Company
will indemnify, to the fullest extent permitted by the DGCL, any officer,
director or employee of the Company who, by reason of the fact that he or she
is or was an officer, director or employee of the Company, was or is made or
is threatened to be made a party to a legal proceeding of any nature. Such
indemnification rights include reimbursement for expenses incurred by the
officer, director or employee in advance of the final disposition of the
proceeding.
TRANSFER AGENT AND REGISTRAR
has been appointed transfer agent and registrar of the Common Stock.
's principal executive offices are located at .
53
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Purchase Agreement (the
"Purchase Agreement") among the Company and each of the underwriters named
below (the "Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Furman Selz
LLC, Lehman Brothers Inc. and Salomon Brothers Inc are acting as
representatives (the "Representatives"), the Company has agreed to sell to
each of the Underwriters, and each of the Underwriters has severally agreed to
purchase from the Company, the aggregate number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ -----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................................
Donaldson, Lufkin & Jenrette Securities Corporation.................
Furman Selz LLC.....................................................
Lehman Brothers Inc. ...............................................
Salomon Brothers Inc................................................
-----------
Total.......................................................... 6,700,000
===========
</TABLE>
In the Purchase Agreement, the several Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the shares of
Common Stock being sold pursuant to the Purchase Agreement if any of such
shares of Common Stock being sold pursuant to such agreement are purchased.
Under certain circumstances, the commitments of non-defaulting Underwriters
may be increased.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock offered hereby to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of $
per share of Common Stock. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share of Common Stock on sales
to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
aggregate of 1,005,000 additional shares of Common Stock at the initial public
offering price, less the underwriting discount. The Underwriters may exercise
this option only to cover over-allotments, if any, made on the sale of Common
Stock offered hereby. To the extent that the Underwriters exercise this
option, each Underwriter will be obligated, subject to certain conditions, to
purchase the number of additional shares of Common Stock proportionate to such
Underwriter's initial amount reflected in the foregoing table.
The Company, each of the Company's directors and officers and Holdings have
agreed not to (except for the shares offered hereby and subject to certain
exceptions in the case of the Company for the grant of, and the issuance of
shares pursuant to the exercise of, employee stock options) directly or
indirectly sell, offer to sell, grant any option for sale of, or otherwise
dispose of any shares of Common Stock or any securities convertible or
exchangeable into, or exercisable for, Common Stock for a period of 180 days
after the date of this Prospectus without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated. See "Shares Eligible For Future
Sale."
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiation among the
Company and the Representatives. Among the factors that will be considered in
determining the initial public offering price are an assessment of the
Company's recent results of operations, the future prospects of the Company
and the industry in general, the price-earnings ratio and the market prices of
securities of other companies engaged in activities similar to the Company and
prevailing conditions in the securities market. There can be no assurance that
an active trading market will develop for the Common Stock or that the Common
Stock will trade in the public market subsequent to the Offering at or above
the initial public offering price.
54
<PAGE>
The Underwriters do not intend to confirm sales of the shares of Common
Stock offered hereby to any accounts over which they exercise discretionary
authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Parker Chapin Flattau & Klimpl, LLP, New York, New
York and for the Underwriters by Brown & Wood, LLP New York, New York.
EXPERTS
The consolidated financial statements as of January 28, 1996 and January 29,
1995 and for each of the three years in the period ended January 28, 1996
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
55
<PAGE>
CSK AUTO, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements
Report of Independent Accountants........................................ F-2
Consolidated Statement of Operations .................................... F-3
Consolidated Balance Sheet............................................... F-4
Consolidated Statement of Stockholder's Equity........................... F-5
Consolidated Statement of Cash Flows .................................... F-6
Notes to Consolidated Financial Statements .............................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of CSK Auto, Inc. (a wholly-owned
subsidiary of CSK Holdings, Ltd.)
The Merger described in Note 1 to the financial statements has not been
consummated at August 9, 1996. When it has been consummated, we will be in a
position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of cash flows and of
stockholder's equity present fairly, in all material respects, the
financial position of CSK Auto, Inc. (a wholly-owned subsidiary of CSK
Holdings, Ltd.) and its subsidiaries at January 28, 1996 and January 29,
1995, and the results of their operations and their cash flows for each of
the three years in the period ended January 28, 1996, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above."
Price Waterhouse LLP
Phoenix, AZ
May 21, 1996
F-2
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS
YEAR ENDED ENDED
----------------------------------- --------------------
JANUARY 30, JANUARY 29, JANUARY 28, APRIL 30, APRIL 28,
1994 1995 1996 1995 1996
----------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $645,426 $ 688,135 $718,352 $ 172,301 $ 189,185
-------- --------- -------- --------- ---------
Cost and expenses:
Cost of sales......... 397,565 410,358 433,817 103,712 113,709
Operating and
administrative....... 237,311 258,600 284,697 68,199 69,450
-------- --------- -------- --------- ---------
634,876 668,958 718,514 171,911 183,159
-------- --------- -------- --------- ---------
Operating profit
(loss)................. 10,550 19,177 (162) 390 6,026
Interest expense........ 11,731 10,343 14,379 3,270 3,595
-------- --------- -------- --------- ---------
Income (loss) before
income taxes and
extraordinary gain..... (1,181) 8,834 (14,541) (2,880) 2,431
Income tax expense
(benefit).............. (531) 796 (5,447) (1,082) 932
-------- --------- -------- --------- ---------
Income (loss) before
extraordinary gain..... (650) 8,038 (9,094) (1,798) 1,499
Extraordinary gain on
the elimination of
debt, net of income
taxes.................. -- 97,186 -- -- --
-------- --------- -------- --------- ---------
Net income (loss)....... $ (650) $ 105,224 $ (9,094) $ (1,798) $ 1,499
======== ========= ======== ========= =========
Net income (loss) per
common share:
Income before
extraordinary gain... $ (0.02) $ 0.26 $ (0.29) $ (0.06) $ 0.05
Extraordinary gain on
the elimination of
debt................. -- 3.15 -- -- --
-------- --------- -------- --------- ---------
Net income (loss)..... $ (0.02) $ 3.41 $ (0.29) $ (0.06) $ 0.05
======== ========= ======== ========= =========
Weighted average
number of common
shares and
equivalents
outstanding ......... 30,860 30,860 30,860 30,860 30,860
======== ========= ======== ========= =========
Supplemental Pro Forma
Data:
Net income (loss)
(unaudited).......... $ (3,173) $ (547) $ 2,947
Net income (loss) per
common share
(unaudited).......... $ (0.08) $ (0.01) $ 0.08
======== ========= =========
Weighted average
number of common
shares and
equivalents
outstanding
(unaudited) ......... 37,457 37,299 37,580
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28,
1995 1996 APRIL 28, 1996
----------- ----------- --------------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents............... $ 2,870 $ 4,364 $ 4,708
Receivables, net of allowances of $1,488
and $1,953, respectively............... 13,676 25,448 24,733
Inventories............................. 225,883 248,964 259,519
Assets held for sale.................... 4,757 1,203 2,937
Prepaid expenses and other assets....... 5,365 4,823 4,776
-------- -------- --------
Total current assets................ 252,551 284,802 296,673
Property and equipment, net............. 77,781 80,018 76,811
Leasehold interests, net................ 16,147 14,500 14,000
Deferred taxes, net..................... 2,609 9,219 8,968
Other assets............................ 1,742 2,780 2,497
-------- -------- --------
Total assets........................ $350,830 $391,319 $398,949
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable........................ $131,078 $145,248 $149,482
Outstanding checks...................... 8,461 13,901
Accrued payroll and related expenses.... 12,739 13,503 14,438
Accrued expenses and other current
liabilities............................ 22,739 21,479 23,033
Due to affiliates....................... 5,530 3,703
Current maturities of amounts due under
credit agreement....................... 2,200 1,000 1,000
Current maturities of capital lease
obligations............................ 4,285 5,488 5,661
Current portion of deferred taxes....... 1,883 3,045 3,403
-------- -------- --------
Total current liabilities........... 174,924 203,754 214,621
-------- -------- --------
Amounts due under credit agreement...... 78,284 95,062 92,671
Obligations under capital leases........ 20,832 20,453 18,941
Other................................... 12,414 12,053 11,220
-------- -------- --------
Total non-current liabilities....... 111,530 127,568 122,832
-------- -------- --------
Commitments and contingencies...........
Stockholder's equity
Preferred stock, $0.001 par value,
10,000,000 shares authorized, no
shares issued and outstanding........ -- -- --
Common stock, $0.001 par value,
75,000,000 shares authorized,
30,300,000 shares issued and
outstanding.......................... 30 30 30
Additional paid-in-capital............ 82,378 87,093 87,093
Accumulated deficit................... (18,032) (27,126) (25,627)
-------- -------- --------
Total stockholder's equity.......... 64,376 59,997 61,496
-------- -------- --------
Total liabilities and stockholder's
equity............................. $350,830 $391,319 $398,949
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN- ACCUMULATED TOTAL
SHARES AMOUNT CAPITAL DEFICIT EQUITY(DEFICIT)
---------- ------ ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at January 31,
1993................... 30,300,000 $30 $77,950 $(122,606) $(44,626)
Contribution from
Holdings............... 3,700 3,700
Net loss................ (650) (650)
---------- --- ------- --------- --------
Balance at January 30,
1994................... 30,300,000 30 81,650 (123,256) (41,576)
Income tax benefit from
Tax Sharing Agreement.. 728 728
Net income.............. 105,224 105,224
---------- --- ------- --------- --------
Balance at January 29,
1995................... 30,300,000 30 82,378 (18,032) 64,376
Contribution from
Holdings............... 4,715 4,715
Net loss................ (9,094) (9,094)
---------- --- ------- --------- --------
Balance at January 28,
1996................... 30,300,000 30 87,093 (27,126) 59,997
Net income (unaudited).. 1,499 1,499
---------- --- ------- --------- --------
Balance at April 28,
1996 (unaudited)....... 30,300,000 $30 $87,093 $ (25,627) $ 61,496
========== === ======= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THIRTEEN WEEKS ENDED
----------------------------------- ----------------------
JANUARY 30, JANUARY 29, JANUARY 28, APRIL 30, APRIL 28,
1994 1995 1996 1995 1996
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by
(used in) operating
activities:
Net income (loss)....... $ (650) $105,224 $ (9,094) $ (1,798) $ 1,499
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and
amortization of
property and
equipment............ 10,222 10,961 14,343 2,978 4,327
Amortization and write
off of leasehold
interests............ 1,795 1,992 1,647 403 500
Amortization of
deferred financing
costs................ 296 359 737 186 272
Amortization of other
deferred charges..... 159 152 271 31 58
Deferred interest on
previous credit
agreement............ 4,621 1,662
Extraordinary gain on
elimination of debt.. (97,186)
Deferred taxes........ (531) (195) (5,448) (1,727) 609
Change in assets and
liabilities:
Accounts receivable... 1,306 (5,063) (11,772) (2,291) 715
Inventories........... (13,341) (34,010) (23,081) (3,252) (10,555)
Prepaid expenses and
other current
assets............... (1,014) 113 542 (29) 47
Accounts payable...... 9,158 37,094 14,170 (4,673) 4,234
Outstanding checks.... (2,090) (3,885) 8,461 4,638 5,440
Accrued payroll,
accrued expenses and
other current
liabilities.......... 8,926 (3,821) (496) 3,720 2,489
Due to affiliate...... 5,530 (1,827)
Other................. (1,288) 1,723 829 66 (804)
-------- -------- --------- ---------- ----------
Net cash provided by
(used in) operating
activities............. 17,569 15,120 (3,361) (1,748) 7,004
-------- -------- --------- ---------- ----------
Cash flows provided by
(used in) investing
activities:
Capital expenditures.. (14,910) (14,597) (11,640) (4,383) (1,052)
Expenditures for
assets held for
sale................. (6,038) (24,203) (7,055) (9,589)
Proceeds from sale of
property and
equipment and assets
held for sale........ 580 1,758 28,257 1,311 7,946
Other investing
activities........... (613) (106) (302) (97)
-------- -------- --------- ---------- ----------
Net cash used in
investing
activities........... (14,943) (18,983) (7,888) (10,224) (2,695)
-------- -------- --------- ---------- ----------
Cash flows provided by
(used in) financing
activities:
Proceeds provided from
debt................. 809,663 213,998 202,510
Payments of debt...... (622) (2,362) (795,807) (198,413) (204,923)
Payments on capital
lease obligations.... (2,833) (2,954) (4,976) (1,139) (1,339)
Contributions from
Holdings............. 3,700 4,715
Other................. (18) (67) (852) (370) (213)
-------- -------- --------- ---------- ----------
Net cash provided by
(used in) financing ac-
tivities............... 227 (5,383) 12,743 14,076 (3,965)
-------- -------- --------- ---------- ----------
Net increase (decrease)
in cash and cash
equivalents............ 2,853 (9,246) 1,494 2,104 344
Cash and cash
equivalents, beginning
of period.............. 9,263 12,116 2,870 2,870 4,364
-------- -------- --------- ---------- ----------
Cash and cash
equivalents, end of
period................. $ 12,116 $ 2,870 $ 4,364 $ 4,974 $ 4,708
======== ======== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CSK Auto, Inc., (the "Company") is a specialty retailer of automotive
aftermarket parts and accessories. At January 28, 1996, the Company operated
566 stores in 14 Western states. CSK Auto, Inc., is a wholly-owned subsidiary
of CSK Holdings, Ltd. ("Holdings").
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Merger
In connection with the Company's initial public offering, Northern
Automotive Corporation ("NAC"), an Arizona corporation, was merged with and
into the Company, a Delaware corporation formed for the sole purpose of
consummating the merger (the "Merger") and effecting the reincorporation of
NAC as a Delaware corporation, with the Delaware corporation surviving the
Merger. As part of the Merger, all outstanding common and preferred stock of
NAC converted into 30,300,000 shares of Common Stock of the Company. The
Merger was treated as a reorganization of entities under common control
because Holdings owned all the outstanding Common and Preferred Stock of NAC
before the Merger and all the outstanding Common Stock of the Company after
the Merger. The accompanying financial statements have been retroactively
restated to give effect of the Merger with no change in the carrying value of
assets and liabilities.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany accounts and transactions
are eliminated in consolidation.
Fiscal Year
The Company's fiscal year-end is the Sunday closest to January 31. The years
ended January 30, 1994, January 29, 1995 and January 28, 1996 all consist of
52 weeks.
Cash Equivalents
Cash equivalents consist primarily of certificates of deposit with
maturities of three months or less when purchased.
Accounts Receivable
Accounts receivable is primarily comprised of amounts due from vendors for
rebates or allowances and from commercial sales customers.
Inventories and Cost of Sales
Inventories are valued at the lower of cost or market, cost being determined
utilizing the last-in, first-out method. Cost of sales includes product cost
net of earned vendor rebates, discounts and allowances. Certain operating and
administrative costs are capitalized in inventories. The amounts of
capitalized operating and administrative costs included in inventory as of
January 29, 1995 and January 28, 1996 were approximately $7.0 million and $8.5
million, respectively. The replacement cost of inventories approximated $188.0
million at January 29, 1995 and $211.0 million at January 28, 1996.
Property and Equipment
Property, equipment and purchased software are recorded at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed for financial reporting purposes utilizing primarily the straight
line method over the estimated useful lives of the related assets which range
from 5 to 25 years, or for
F-7
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
leasehold improvements and property under capital lease, the base lease term
or estimated useful life, if shorter. Maintenance and repairs are charged to
earnings while major improvements are capitalized.
Store Preopening Costs
Store preopening costs, consisting primarily of incremental labor, supplies
and occupancy costs directly related to the opening of specific stores, are
capitalized as prepaid expenses and other current assets and are expensed
during the month in which the store is opened.
Internal Software Development Costs
Internal software development costs, consisting primarily of incremental
internal labor costs and benefits, are expensed as incurred. Total amounts
charged to operations for 1993, 1994 and 1995 were approximately $0.7 million,
$3.0 million $6.2 million, respectively.
Leasehold Interests
Leasehold interests represent the discounted net present value of the excess
of the fair rental value over the respective contractual rent of facilities
under operating leases acquired in business combinations, and are amortized on
a straight-line basis over the respective lease terms. Accumulated
amortization approximated $15.2 million and $16.2 million at January 29, 1995
and January 28, 1996, respectively.
Reserve for Closed Stores
The Company provides a reserve for estimated costs and losses to be incurred
in connection with store closures which includes the present value of lease
rentals, net of anticipated sublease income, and losses on the disposal of
store-related assets.
COST OF STORE CLOSINGS
<TABLE>
<CAPTION>
BEGINNING RESERVE CHANGES ENDING
BALANCE SET-UP PAYMENTS IN ESTIMATE BALANCE
--------- ------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
1993........................ $7,054 $2,151 $(1,221) $(1,621) $6,363
1994........................ 6,363 1,839 (1,207) (1,250) 5,745
1995........................ 5,745 1,384 (1,260) (571) 5,298
</TABLE>
Advertising
The Company expenses all advertising costs as such costs are incurred.
Amounts due under vendor cooperative advertising agreements are recorded as
receivables until their collection. Advertising expenses for fiscal years
1993, 1994 and 1995 totaled approximately $21.9 million, $24.7 million and
$19.8 million, respectively.
Assets Held for Sale
Assets held for sale consist of assets owned by the Company which will be
sold and leased back in the near future.
Income Taxes
At the beginning of the fiscal year ended January 30, 1994, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," on a prospective basis. The adoption did not
have a material impact on the Company. This standard requires that the Company
compute its
F-8
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
federal income tax expense as if it were a separate taxpayer, irrespective of
the provisions of the existing Tax Agreement (as defined in Note 9).
Deferred income taxes have been provided for all significant temporary
differences. These temporary differences arise principally from compensation
not yet deductible for tax purposes, losses not yet deductible for tax
purposes and the use of accelerated depreciation methods.
Earnings Per Share
Income (loss) per common and common equivalent share is computed using the
weighted average number of common and common equivalent shares outstanding
during the period as if the Merger had occurred. Common equivalent shares are
excluded from the computation if their effect is anti-dilutive except,
pursuant to the requirements of the Securities and Exchange Commission, common
equivalent shares subject to stock options (using the treasury stock method
and an assumed initial public offering price of $15.00 per share) issued
during the twelve month period prior to the initial public offering are
considered common equivalent shares for all periods prior to the initial
public offering.
Supplemental Earnings Per Share (unaudited)
Supplemental net income (loss) per share for the year ended January 28, 1996
and the thirteen week periods ended April 30, 1995 and April 28, 1996 have
been calculated as if $92.5 million of the net proceeds from the Company's
initial public offering from the issuance of 6.7 million shares was used to
retire the Company's debt under the Credit Agreement (see Note 4) on January
30, 1995. Only the incremental shares necessary to retire this debt, based on
assumed net proceeds per share of $13.81, have been included in the
calculation. Interest expense related to the retired debt has been added to
income net of the related tax effect.
Fair Value of Financial Instruments
Financial instruments such as cash and cash equivalents, accounts
receivable, accounts payable, accrued liabilities and obligations under
capital leases or credit agreements are recorded at values which approximate
their fair values.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets to be Disposed Of" ("SFAS 121"), issued in
March 1995 and effective for fiscal years beginning after December 15, 1995,
requires recognition of impairment losses on long-lived assets and certain
intangible assets to be disposed of. As of January 28, 1996, there were no
impairment losses, as defined, and, accordingly, SFAS 121 is not expected to
have a material impact on the Company when it is adopted.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation", issued in October 1995, and effective for fiscal years
beginning after December 15, 1995, encourages, but does not require, a fair
value based method of accounting for employee stock options or similar equity
instruments. It also allows an entity to elect to continue to measure
compensation costs using the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock
F-9
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Issued to Employees" but requires pro forma disclosures of net income and
earnings per share as if the fair value method of accounting had been applied.
The Company has elected to continue to measure compensation cost under APB 25
and will comply with the pro forma disclosure requirements in fiscal 1996.
Unaudited interim financial statements
The interim consolidated financial statements as of April 28, 1996 and for
the thirteen week periods ended April 30, 1995 and April 28, 1996 are
unaudited. In the opinion of management, such interim consolidated financial
statements include all adjustments consisting only of normal recurring
adjustments necessary to present fairly the Company's consolidated financial
position as of April 28, 1996 and the consolidated results of operations and
cash flows for the periods ended April 30, 1995 and April 28, 1996. The
interim results of operations are not necessarily indicative of results which
may occur for the full year.
NOTE 2--TRANSACTIONS AND RELATIONSHIPS WITH RELATED PARTIES
The Company provided Auto Works Holdings, Inc. ("Auto Works"), a former
affiliate of the Company, with management and other support services. The
Company had a receivable from Auto Works for $11.4 million as of February 2,
1992, for services provided through that date, which was converted into a non-
interest bearing obligation maturing in fifteen years (or sooner under certain
conditions). On November 27, 1993, Auto Works was sold to an independent third
party. Subsequent thereto, and pursuant to the stock purchase agreement
between Holdings and the third party, Holdings assumed the $11.4 million
obligation of Auto Works to the Company which was outstanding on November 27,
1993. During the year ended January 30, 1994 the Company recorded
approximately $1.3 million, as a reduction of costs and expenses, for services
provided to Auto Works through November 27, 1993. In the years ended January
30, 1994 and January 28, 1996, the Company received payments on the obligation
of $3.7 million and $4.7 million, respectively. The payments were reflected as
contributions from Holdings. The entire assumed balance of the receivable was
not recorded as a contribution in 1993, as it was not determinable if Holdings
would make additional funds available beyond the $3.7 million that was
received that year. Subsequently, the $4.7 million contribution was made by
Holdings from other available funds.
During the year ended January 28, 1996, the Company received approximately
$14.1 million of proceeds from the sale of realty and fixtures to an affiliate
at amounts that equaled the Company's cost, which approximated fair market
value. The related assets were subsequently leased back by the Company. In
addition, an affiliate was owed at January 28, 1996 approximately $5.5
million. The Company's obligation which was incurred in connection with the
purchase of product from two of its vendors was subsequently transferred. At
the time of such transfers, the Company owed the sum of approximately $16.6
million less anticipated discounts of $0.8 million to the vendors, since
reduced by prepayments. The obligation to the affiliate is non-interest
bearing and matures on December 31, 1996. The Company's obligation will be
reduced by $1,038 multiplied by the number of days prior to December 31, 1996
that full payment is made.
The Company leases certain facilities from related parties (see Note 5).
F-10
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following (thousands of dollars):
<TABLE>
<CAPTION>
JANUARY 29, 1995 JANUARY 28, 1996
---------------- ----------------
<S> <C> <C>
Land..................................... $ 1,448 $ 1,342
Buildings................................ 1,799 1,763
Leasehold improvements................... 35,023 39,483
Furniture, fixtures & equipment.......... 49,272 52,773
Property under capital leases............ 42,804 43,863
Purchased software....................... 4,696 4,679
-------- --------
135,042 143,903
Less accumulated depreciation and amorti-
zation.................................. (57,261) (63,885)
-------- --------
$ 77,781 $ 80,018
======== ========
</TABLE>
Accumulated amortization of property under capital leases totaled $18.9
million at January 28, 1996 and at January 29, 1995.
NOTE 4--CREDIT AGREEMENT
On June 22, 1994, the Company restructured its existing long-term debt
obligations which were originally recorded at a value of $178.2 million into
an $81.0 million Amended and Restated Credit Agreement (the "Amended Credit
Agreement"), resulting in a gain on elimination of debt of $97.2 million. The
amount recorded under the existing long-term obligations included principal
amounts, accrued interest and an unamortized premium resulting from a 1992
restructuring. The Company recorded the gain on elimination of debt as a non-
taxable event (see Note 9).
During fiscal year ended January 28, 1996, the Company entered into a $100.0
million credit agreement (the "1995 Agreement"). Outstanding debt under the
Amended Credit Agreement was paid in full from borrowings under the 1995
Agreement. Pursuant to the terms of the 1995 Agreement, the Company obtained a
$5.0 million term loan with monthly principal payments of $83,333 commencing
April 1, 1995 and with a final payment due February, 1997. The 1995 Agreement
also provides for a revolving credit facility (the "Revolver") of
approximately $95.0 million. Amounts available under the Revolver are
determined by inventory levels and by the outstanding balance of the term
loan. Interest is paid at LIBOR plus 3% on outstanding balances of the term
loan and Revolver under a LIBOR agreement and prime plus 1% on the remaining
balance. The average interest rate on amounts outstanding under the 1995
Agreement at January 28, 1996 was 9.03%. All outstanding borrowings under the
Revolver are due in February, 1997. Subject to certain conditions, the 1995
Agreement contains renewal options which can be made, at the Company's
request, in one year intervals through February, 2001.
Commitment fees on available borrowings are payable over the term of the
1995 Agreement on the average daily unused amount of the total commitment at
the rate of 1/2% per annum.
Obligations outstanding under the 1995 Agreement totaled $96.0 million at
January 28, 1996. Such amounts are secured by substantially all of the assets
of the Company. The terms of the 1995 Agreement require the Company to meet
certain financial covenants and maintain minimum levels of net worth; failure
to meet such covenants could result in reclassification of related debt to
current liabilities.
F-11
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--LEASES
The Company leases its office and warehouse facilities and a majority of its
stores and equipment. Generally, store leases provide for minimum rentals and
the payment of utilities, maintenance, insurance and taxes. Certain store
leases also provide for contingent rentals based upon a percentage of sales in
excess of a stipulated minimum. The majority of lease agreements are for base
lease periods ranging from 15 to 20 years, with three to five renewal options
of five years each.
Operating lease rental expense is as follows (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
JANUARY 30, JANUARY 29, JANUARY 28,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Minimum rentals.......................... $43,466 $46,016 $55,051
Contingent rentals....................... 2,698 1,385 1,284
Sublease rentals......................... (4,732) (4,411) (4,369)
------- ------- -------
$41,432 $42,990 $51,966
======= ======= =======
</TABLE>
Future minimum lease obligations under non-cancelable leases at January 28,
1996, are as follows (thousands of dollars):
<TABLE>
<CAPTION>
OPERATING CAPITAL
FOR FISCAL YEARS ENDING IN: LEASES LEASES
--------------------------- --------- --------
<S> <C> <C>
1997..................................................... $ 46,507 $ 9,586
1998..................................................... 44,004 9,540
1999..................................................... 39,256 8,965
2000..................................................... 35,027 6,259
2001..................................................... 33,029 699
Thereafter............................................... 166,694 1,445
-------- --------
$364,517 36,494
========
Less amounts representing interest....................... (10,553)
--------
Present value of obligations............................. 25,941
Less current portion..................................... (5,488)
--------
Long-term obligations.................................... $ 20,453
========
</TABLE>
Future minimum lease obligations under operating leases with affiliates
totaled $28.6 million at January 28, 1996. Operating lease rental expense
under leases with affiliates totaled $1.4 million for the years ended January
30, 1994 and January 29, 1995, respectively and $1.8 million for the year
ended January 28, 1996. The implicit interest rate of capital leases varies
from 7.5% to 14.5% with an average implicit rate of approximately 10.9%.
NOTE 6--REENGINEERING DISTRIBUTION OPERATIONS
During the fiscal year ended January 30, 1994, the Company initiated a plan
to reengineer its distribution operations. In connection with this plan, a
provision to operating expense of $3.6 million was made.
The reengineering charge includes estimated facilities and equipment charges
in addition to other related expenses. Net costs of approximately $2.1 million
and $1.5 million were charged against the accrual for the fiscal year ended
January 28, 1996 and January 29, 1995, respectively.
F-12
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company provides various health, welfare and disability benefits to its
full-time employees which are funded primarily by contributions. The Company
does not provide post-employment or post-retirement health care and life
insurance benefits to its employees.
The Company sponsors a 401(k) plan which is available to all employees of
the Company who have completed one year of continuous service. The Company
matches 20% of the contributions up to 6% of the participants base salary.
Participant contributions are subject to certain restrictions as set forth in
the Internal Revenue Code. The Company's matching contributions totaled
$208,000, $230,000 and $267,000, for fiscal years 1993, 1994 and 1995,
respectively.
Pursuant to certain equity participation agreements, certain current
officers and a former officer of the Company have been granted participation
interests equal in the aggregate to 6.4% of the Common Stock held by Holdings
immediately prior to the Offering. The agreements provide that if the
respective individual's participation interest has vested, such individual
would earn a cash payment payable by the Company equal to the product of their
vested participation interest and the consideration received up to a maximum
of $12.75 per equity participation share equivalent (not to exceed, in the
aggregate, $24.0 million for all such individuals) if one or more of the
following events occurred: (i) the sale of substantially all of the assets of
the Company to an unaffiliated entity, (ii) the merger of the Company with an
unaffiliated entity where the stockholders of the Company before the merger
are not the holders of a majority of the voting stock of the merged entity, or
(iii) a public or private sale of the Company's Common Stock by CSK Holdings,
Ltd. to an unaffiliated entity. Payments to be made pursuant to the agreements
are generally based upon a percentage relating to the individual's vested
portion of his participation interest. In the event of a sale of Common Stock
by CSK Holdings, Ltd., however, the payments are to be adjusted based upon the
percentage of such Stockholder's holding in the Company that is being sold.
Except in the case of a sale of the Company's stock by CSK Holdings, Ltd., in
which case payments are to be made within 30 days of such sale, all payments
under the agreements are to be made over a one year period from the date of
the event triggering the payments (the "Triggering Event") and are conditioned
upon the individual remaining employed by the Company for at least one year
from the Triggering Event. The initial public offering of the Company is not
considered a Triggering Event.
The Company has adopted a variety of stock based compensation plans designed
to attract and retain employees (including officers and directors who are
employees), non-employee directors and consultants of the Company, and to
generally encourage superior performance by the Company's management,
employees and consultants at all levels of the Company's organization. These
plans, which include (i) the 1996 Management Stock Purchase Plan (the
"Management Stock Purchase Plan"), (ii) the 1996 Employee Stock Option Plan
(the "Employee Stock Option Plan"), (iii) the 1996 Employee Stock Purchase
Plan (the "Employee Stock Purchase Plan) and (iv) the 1996 Director Stock Plan
(the "Director Stock Plan", and together with the Management Stock Purchase
Plan, the Employee Stock Purchase Plan and the Employee Stock Option Plan,
collectively, the "Stock Based Plans"), are also intended to align the
interests of directors, officers, employees and consultants with those of the
Company's stockholders. The aggregate shares reserved for issuance under the
Company's Stock Based Plans are expected to represent approximately 13.1% of
the shares of Common Stock outstanding after the Offering. The number of
shares issued pursuant to such plans will depend upon the degree to which
awards are made or exercised and the degree to which shares are purchased by
participants. Options for 3,584,052 shares of Common Stock granted under the
Employee Stock Option Plan are outstanding of which options for 2,118,000
shares of Common Stock are currently exercisable at $12.75 per share.
MANAGEMENT STOCK PURCHASE PLAN. The number of shares of Common Stock
reserved for issuance under the Management Stock Purchase Plan is 250,000
shares, representing, subject to equitable adjustment as set forth in the
Management Stock Purchase Plan.
F-13
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The participants in the Management Stock Purchase Plan will consist of all
Company officers and such employees of the Company and the Company's
subsidiaries and parent as are participants in the Company's Incentive Plan.
Although the Management Stock Purchase Plan and the Incentive Plan are
separate plans, the same individuals participate in each plan. Each
participant will at his or her election be permitted to receive up to 100% of
the annual incentive bonus, if any, earned by the participant under the
Incentive Plan (less certain payroll deductions) in the form of restricted
shares of Common Stock ("Restricted Shares") under the Management Stock
Purchase Plan at 85% of their fair market value on the date such restricted
shares are issued. No shares may be purchased under the Management Stock
Purchase Plan prior to completion of the Offering.
The restricted period for Restricted Shares purchased under the Management
Stock Purchase Plan will be one year from the date of purchase. The Restricted
Shares cannot be sold during the restricted period.
EMPLOYEE STOCK OPTION PLAN. The number of shares of Common Stock initially
reserved for issuance upon exercise of options that may be granted under the
Stock Option Plan is 4,300,000 shares, subject to equitable adjustment as set
forth in the Employee Stock Option Plan.
Options may be granted to employees (including officers and directors who
are employees) of, and to consultants to, the Company, its subsidiaries or its
parent. Upon expiration, cancellation or termination of unexercised options,
the Shares of the Company's Common Stock subject to such options will again be
available for the grant of options under the Employee Stock Option Plan.
Options granted under the Employee Stock Option Plan may either be incentive
stock options ("ISOs"), within the meaning of Section 422 of the Code, or
nonqualified stock options which do not qualify as ISOs ("NQSOs"). ISOs,
however, may only be granted to employees.
The exercise price of each option will be determined by the Compensation
Committee (the "Committee"); provided however, that the exercise price of an
ISO may not be less than the fair market value of the Company's Common Stock
on the date of grant (110% of such fair market value if the optionee owns (or
is deemed to own) more than 10% of the voting power of the Company, its
subsidiaries or its parent). The exercise price of each option is payable in
full upon exercise or, if the applicable Contract permits, in installments.
Payment of the exercise price of an option may be made in cash, or if the
applicable Contract permits, in cash, in shares of the Company's Common Stock
or any combination thereof.
Options may be granted for terms determined by the Committee; provided,
however, that the term of an ISO may not exceed 10 years (5 years if the
optionee owns (or is deemed to own) more than 10% of the voting power of the
Company, its subsidiaries or its parent).
The maximum number of shares of the Company's Common Stock for which options
may be granted to an employee in any fiscal year of the Company is 1,250,000.
In addition, the aggregate fair market value of shares with respect to which
ISOs may be granted to an employee which are exercisable for the first time
during any calendar year may not exceed $100,000.
During June 1996, an aggregate of 1,819,000 options were issued to certain
officers and Directors of the Company. An additional aggregate of 1,563,052
options were issued to other employees of the Company, and 202,000 options
were issued to a former officer of the company outside of the Employee Stock
Option Plan to satisfy certain Company obligations under his employment
arrangement. Of the foregoing options, an aggregate of 2,118,000 options
granted to the certain officers referenced above, two additional current
officers and the former officer are currently exercisable. Of the remaining
options, 1,339,802 vest over five years commencing three years from the date
of their grant and 126,250 options have varying vesting schedules. All
outstanding options have a term of ten years and are exercisable at a price of
$12.75 per share.
F-14
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN. The Employee Stock Purchase Plan is intended
to qualify as an employee stock purchase plan under Section 423 of the
Internal Revenue Code. Under the Employee Stock Purchase Plan, the maximum
number of shares of Common Stock for which options may be granted is 250,000
shares, subject to equitable adjustment as set forth in the Employee Stock
Purchase Plan. No shares may be purchased under the Employee Stock Purchase
Plan prior to the completion of the Offering.
DIRECTOR STOCK PLAN. The maximum number of shares of Common Stock initially
reserved for issuance under the Director Stock Plan is 50,000 shares, subject
to equitable adjustment as set forth in the Director Stock Plan.
The participants in the Director Stock Plan will consist of all of the
directors of the Company who are not officers or employees of the Company or
any of its affiliates. Each participant will receive all of his or her annual
retainer in the form of Restricted Shares paid in four installments at the
beginning each calendar quarter and all of his or her meeting fees in the form
of Restricted Shares paid at the end of the calendar quarter in which the
meeting occurred. The restrictions on such Restricted Shares will lapse one
year from the date of grant. The stock cannot be sold during the restricted
period. The total number of Restricted Shares included in each grant will be
determined by dividing one-quarter of the participant's retainer by the fair
market value of one share of Common Stock on the first business day of each
calendar quarter. With respect to the meeting fees, the total number of shares
of Restricted Shares included in each grant will be determined by dividing the
participant's meeting fees for the calendar quarter by the fair market value
of one share of Common Stock on the last business day of the calendar quarter.
NOTE 8--SUPPLEMENTAL SCHEDULE OF CASH FLOWS
Interest paid during 1993, 1994 and 1995 amounted to $6.9 million, $8.5
million and $13.4 million, respectively. Such amounts include interest paid on
the bank credit facility and capital leases.
Income taxes paid during 1993, 1994 and 1995 amounted to $0, $264,000 and
$0, respectively.
NOTE 9--INCOME TAXES
The Company and its subsidiaries are, with other affiliates, members of a
group which, for federal income tax purposes, constitutes a consolidated group
which files a consolidated federal income tax return. Members of the group
have entered into an Intercompany Tax Allocation Agreement, as amended (the
"Tax Agreement") with their ultimate parent, CSK Group, Ltd., pursuant to
which (i) the Company's federal tax liability, if any, computed on a separate
return basis will not exceed the aggregate tax liability of the entire
consolidated group, (ii) the tax liability, if any, of other members of the
consolidated group may be reduced by the utilization of a portion of the
Company's tax loss carryforwards, and (iii) for any year in which federal
income taxes are payable on a consolidated basis, each of the members of the
consolidated tax group who, on a stand alone basis, would have had a federal
tax obligation for such year will be obligated to pay a pro-rata portion of
the consolidated tax obligation. At the beginning of the fiscal year ended
January 30, 1994, the Company prospectively adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). This
standard requires that the Company compute its federal income tax expense as
if it were a separate taxpayer, irrespective of the provisions of the Tax
Agreement. The difference between the Company's current federal income tax
liability calculated as if it were a separate taxpayer and the actual amounts
due under the Tax Agreement as of January 29, 1995 was accounted for as
additional paid in capital of the Company. No such difference existed as of
January 28,1996 as management does not anticipate that other members
participating in
F-15
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the Tax Agreement will utilize the tax loss carryforward generated by the
Company during the year ended January 28, 1996.
Prior to the completion of the Offering, each member of the Company Group
and CSK Group, Ltd. will enter into a Tax Sharing Agreement (the "Tax Sharing
Agreement") that will require the Company to pay CSK Group, Ltd. an amount
equal to the amount of the federal and state income taxes that the Company
Group would have been required to pay if the Company Group filed its own
separate tax returns and was never part of the CSK Group Ltd. tax returns. On
the other hand, the Company will be paid for any tax attributes of the Company
or its subsidiaries that are used to reduce the tax that would otherwise be
paid by CSK Group Ltd. and its other subsidiaries. The new Tax Sharing
Agreement is not expected to have a material impact on the Company.
As a result, the provision (benefit) for income taxes is comprised of the
following (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
JANUARY 30, JANUARY 29, JANUARY 28,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal............................... $ 0 $ 992 $(1,801)
State................................. 0 223 (406)
----- ------ -------
0 1,215 (2,207)
----- ------ -------
Deferred:
Federal............................... (434) 55 (2,922)
State................................. (97) (474) (318)
----- ------ -------
(531) (419) (3,240)
----- ------ -------
Total............................... $(531) $ 796 $(5,447)
===== ====== =======
</TABLE>
The following table summarizes the differences between the Company's
expected provision (benefit) for income taxes based on the Company's income
before taxes and actual amounts recorded by the Company (thousands of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
JANUARY 30, JANUARY 29, JANUARY 28,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Income before taxes.................... $(1,181) $8,834 $(14,541)
Federal income tax rate................ 34% 34% 34%
------- ------ --------
Expected provision for income taxes.... (402) 3,004 (4,944)
State taxes, net of federal benefit.... (55) 425 (671)
State taxes, rate adjustment........... (496)
Valuation allowance.................... (2,220)
Other.................................. (74) 83 168
------- ------ --------
Actual (benefit) provision for income
taxes................................. $ (531) $ 796 $ (5,447)
======= ====== ========
</TABLE>
As discussed in Note 4, the Company treated the $97.2 million gain on the
elimination of debt which occurred in the year ended January 29, 1995 as a
nontaxable event. As a result of this treatment, the Company lost the ability
to utilize approximately $60.0 million of net operating loss carryforwards. At
January 30, 1994, the Company carried a valuation allowance against the entire
amount of the carryforwards, and accordingly, the loss of such carryforwards
has no effect on the results of operations of the Company for the year ended
January 29, 1995.
F-16
<PAGE>
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At January 30, 1994, a valuation allowance of $2.2 million existed as an
offset to the Company's deferred tax assets. The valuation allowance was
eliminated at January 29, 1995 due to the Company's forecasted ability to
utilize all deferred tax assets.
The current and non-current deferred tax assets and liabilities consist of
the following (thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------
JANUARY 29, JANUARY 28,
1995 1996
----------- -----------
<S> <C> <C>
Gross deferred tax assets:
Closed store reserve............................. $ 3,054 $ 2,048
Salaries and benefits............................ 2,471 2,847
Capital leases expenditures...................... 1,220 1,064
Internally developed software.................... 1,485 3,639
Preopening costs................................. 625 1,933
Site selection costs............................. 1,350 1,566
Bad debt reserve................................. 576 744
Tax loss carryforwards........................... 1,860
Other............................................ 655
------- -------
Total gross deferred tax assets................ 10,781 16,356
------- -------
Gross deferred tax liabilities:
Inventory........................................ 7,235 8,159
Depreciation..................................... 2,820 2,023
------- -------
Total gross deferred tax liabilities........... 10,055 10,182
------- -------
Net deferred tax asset............................. $ 726 $ 6,174
======= =======
The net tax asset (liability) is reflected in the
accompanying balance sheet as follows:
Current deferred tax liability, net.............. $(1,883) $(3,045)
Non-current deferred tax asset, net.............. 2,609 9,219
------- -------
Net deferred tax asset........................... $ 726 $ 6,174
======= =======
</TABLE>
The Company has recorded a deferred tax asset of $1.9 million as of January
28, 1996 reflecting the benefit of tax loss carryforwards which expire in
2011. Realization is dependent on generating sufficient taxable income prior
to expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that all the deferred tax asset
will be realized. Accordingly, the Company believes that no valuation
allowance is required for deferred tax assets in excess of deferred tax
liabilities. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable
income during the carryforward period are reduced.
NOTE 10--LEGAL MATTERS
The Company is a defendant in various legal matters arising from normal
business activities. Management believes that the ultimate outcome of these
matters will not have a material effect on the Company's results of
operations, financial position or cash flows.
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CON-
NECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Dilution................................................................. 14
Selected Consolidated Financial Data..................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 25
Management............................................................... 37
Certain Transactions..................................................... 48
Principal Stockholders................................................... 50
Shares Eligible for Future Sale.......................................... 51
The Merger............................................................... 51
Description of Capital Stock............................................. 52
Underwriting............................................................. 54
Legal Matters............................................................ 55
Experts.................................................................. 55
Index to Consolidated Financial Statements............................... F-1
</TABLE>
---------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIRE-
MENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
6,700,000 SHARES
CSK AUTO, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FURMAN SELZ
LEHMAN BROTHERS
SALOMON BROTHERS INC
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
All of the expenses listed below are estimated except for the SEC
registration fee, the NASD filing fee and the New York Stock Exchange ("NYSE")
listing fee. The itemized statement below includes all expenses in connection
with the distribution of the securities being registered, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $42,510
NASD filing fee.................................................... 12,828
The New York Stock Exchange listing fee............................ 51,500
Blue Sky fees and expenses (including attorneys' fees and
expenses)......................................................... 10,000
Printing and engraving expenses....................................
Transfer Agent's fees and expenses.................................
Accounting fees and expenses.......................................
Legal fees and expenses............................................
Miscellaneous expenses.............................................
-------
TOTAL............................................................ $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful. A Delaware
corporation may indemnify any persons who are, or are threatened to be made, a
party to any threatened, pending or completed action or suit by or in the
right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided
such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the corporation's best interests except that no
indemnification is permitted without judicial approval if the director,
officer, employee or agent is adjudged to be liable to the corporation. Where
a director, officer, employee or agent is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which he has actually and reasonably
incurred.
The Company's certificate of incorporation provides for the indemnification
of directors and officers of the Company to the fullest extent permitted by
Section 145.
Article Eleven of the Company's Certificate of Incorporation provides that
the Company shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of the fact
that he is or was a director or officer of such corporation, or is or was
serving at the request of such corporation as a director, officer or member of
another corporation,
II-1
<PAGE>
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of such corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. Indemnification in connection with an action
or suit by or in the right of such corporation to procure a judgment in its
favor is limited to payment of expenses (including attorneys' fees) actually
and reasonably incurred in connection with the defense or settlement of such
an action or suit except that no such indemnification may be made in respect
of any claim, issue or matter as to which such person shall have been adjudged
to be liable for negligence or misconduct in the performance of his duty to
the indemnifying corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought
shall determine that, despite the adjudication of liability but in
consideration of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
The Purchase Agreement contains, among other things, provisions whereby the
Underwriters agree to indemnify the Company, each officer and director of the
Company who has signed the Registration Statement and each person who controls
the Company within the meaning of Section 15 of the Securities Act against any
losses, liabilities, claims or damages arising out of the alleged untrue
statements or alleged omissions of material facts with respect to information
furnished to the Company by the Underwriters for use in the Registration
Statement or Prospectus. See Item 17 "Undertakings."
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Company has made no sales of unregistered
securities except that on June 22, 1996 certain executive officers of the
Company purchased shares of common stock of NAC which upon consummation of the
Merger will be exchanged for an aggregate of 21,700 shares of the Company.
Such sales were made pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<C> <S>
1.1 Form of Purchase Agreement
2.1* Agreement and Plan of Merger
3.1 Certificate of Incorporation of the Company
3.2 By-laws of the Company
3.3* Amendment to the Certificate of Incorporation of the Company
4.1+ Form of certificate representing shares of Common Stock of the Company
4.2 Form of Subscription Agreement between the Company and certain of its
executive officers
5.1* Form of Opinion and consent of Parker Chapin Flattau & Klimpl, LLP
10.1 1996 Employee Stock Option Plan
10.2 1996 Management Stock Purchase Plan
10.3 1996 Director Stock Plan
10.4 1996 Employee Stock Purchase Plan
10.5 Employment Agreement dated June 19, 1996 between the Company and Jules
Trump
10.6 Employment Agreement dated June 19, 1996 between the Company and James
Bazlen
10.7 Employment Agreement dated June 19, 1996 between the Company and
Arthur Hicks
10.8 Amended and Restated Participation Agreement dated June 19, 1996
between the Company and James Bazlen relating to equity participation
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.9 Amended and Restated Participation Agreement dated June 19, 1996
between the Company and Arthur Hicks relating to equity participation
10.10 1996 General and Administrative Staff Incentive Compensation Plan
10.11 Amended and Restated Credit Agreement dated as of June 21, 1996,
between the Company and Transamerica Credit Corporation individually
and as agent for other lending institutions
10.12 Letter of Credit Facilitation Agreement dated January 16, 1995 between
the Company and First Interstate Bank of Arizona, N.A.
10.13 Amended and Restated Lease dated October 23, 1989 between the Company
and Missouri Falls Associates Limited Partnership
10.14 First Amendment to Amended and Restated Lease dated November 22, 1991
between the Company and Missouri Falls Associates Limited Partnership
10.15 Form of Tax Sharing Agreement between the Company and CSK Group Ltd.
10.16 Form of Agreement of Purchase and Sale and Joint Escrow Instructions
by and between the Company and TransAtlantic Realty, Inc.
10.17 Form of Lease Agreement between TransAtlantic Realty, Inc. and the
Company
11.1 Statement Regarding Computation of Earnings Per Share
21.1 Subsidiaries of the Company
23.1* Consent of Price Waterhouse LLP
23.2+ Consent of Parker Chapin Flattau & Klimpl, LLP (included in opinion
filed as Exhibit 5.1)
</TABLE>
- --------
* Filed with this amendment.
+ To be filed by amendment.
(b) Financial Statement Schedules:
For the three years ended January 28, 1996:
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-3
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining the liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PHOENIX, STATE OF
ARIZONA, ON THE 12TH DAY OF AUGUST 1996.
CSK Auto, Inc.
/s/ James Bazlen
By: _________________________________
JAMES BAZLEN PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Co-Chairman of the August 12, 1996
- ------------------------------------- Board and Director
JULES TRUMP (principal
executive officer)
* Co-Chairman of the August 12, 1996
- ------------------------------------- Board and Director
EDDIE TRUMP
/s/ James Bazlen President and August 12, 1996
- ------------------------------------- Director (principal
JAMES BAZLEN financial and
accounting officer)
* Director August 12, 1996
- -------------------------------------
JAMES LIEB
* Director August 12, 1996
- -------------------------------------
ROBERT SMITH
*By: /s/ James Bazlen
- -------------------------------------
James Bazlen, Attorney-in-fact
</TABLE>
II-5
<PAGE>
SCHEDULE II
CSK AUTO, INC.
(A WHOLLY-OWNED SUBSIDIARY OF CSK HOLDINGS LTD.)
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED JANUARY 30, 1994
Reserves for Closed Stores....... $7,054 $2,151 $(2,842) $6,363
Reserves for Bad Debts........... 2,159 1,681 (1,712) 2,128
Tax Valuation Allowance.......... -- -- 2,220 2,220
YEAR ENDED JANUARY 29, 1995
Reserves for Closed Stores....... 6,363 1,839 (2,457) 5,745
Reserves for Bad Debts........... 2,128 1,447 (2,087) 1,488
Tax Valuation Allowance.......... 2,220 -- (2,220) --
YEAR ENDED JANUARY 28, 1996
Reserves for Closed Stores....... 5,745 1,384 (1,831) 5,298
Reserves for Bad Debts........... 1,488 1,437 (972) 1,953
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Purchase Agreement
2.1* Form of Agreement and Plan of Merger
3.1 Certificate of Incorporation of the Company
3.2 By-laws of the Company
3.3* Amendment to the Certificate of Incorporation of the Company
4.1+ Form of certificate representing shares of Common Stock of the Company
4.2 Form of Subscription Agreement between the Company and certain of its
executive officers
5.1* Form of Opinion and consent of Parker Chapin Flattau & Klimpl, LLP
10.1 1996 Employee Stock Option Plan
10.2 1996 Management Stock Purchase Plan
10.3 1996 Director Stock Plan
10.4 1996 Employee Stock Purchase Plan
10.5 Employment Agreement dated June 19, 1996 between the Company and Jules
Trump
10.6 Employment Agreement dated June 19, 1996 between the Company and James
Bazlen
10.7 Employment Agreement dated June 19, 1996 between the Company and
Arthur Hicks
10.8 Amended and Restated Participation Agreement dated June 19, 1996
between the Company and James Bazlen relating to equity participation
10.9 Amended and Restated Participation Agreement dated June 19, 1996
between the Company and Arthur Hicks relating to equity participation
10.10 1996 General and Administrative Staff Incentive Compensation Plan
10.11 Amended and Restated Credit Agreement dated as of June 21, 1996,
between the Company and Transamerica Credit Corporation individually
and as agent for other lending institutions
10.12 Letter of Credit Facilitation Agreement dated January 16, 1995 between
the Company and First Interstate Bank of Arizona, N.A.
10.13 Amended and Restated Lease dated October 23, 1989 between the Company
and Missouri Falls Associates Limited Partnership
10.14 First Amendment to Amended and Restated Lease dated November 22, 1991
between the Company and Missouri Falls Associates Limited Partnership
10.15 Form of Tax Sharing Agreement between the Company and CSK Group Ltd.
10.16 Form of Agreement of Purchase and Sale and Joint Escrow Instructions
by and between the Company and TransAtlantic Realty, Inc.
10.17 Form of Lease Agreement between TransAtlantic Realty, Inc. and the
Company
11.1 Statement Regarding Computation of Earnings Per Share
21.1 Subsidiaries of the Company
23.1* Consent of Price Waterhouse LLP
23.2+ Consent of Parker Chapin Flattau & Klimpl, LLP (included in opinion
filed as Exhibit 5.1)
</TABLE>
- --------
* Filed with this amendment.
+ To be filed by amendment.
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
of
NORTHERN AUTOMOTIVE CORPORATION
into
CSK AUTO, INC.
________________________________
AGREEMENT AND PLAN OF MERGER dated July 26, 1996 (the "Agreement") by
---------
and between NORTHERN AUTOMOTIVE CORPORATION, an Arizona corporation having a
mailing address at 645 E. Missouri Avenue, Phoenix, Arizona 85012 ("NAC") and
---
CSK AUTO, INC., a Delaware corporation having a mailing address at 645 East
Missouri Avenue, Phoenix, Arizona 85012 ("CSK"), as the "constituent
---
corporations" to the merger contemplated by this Agreement (the "Merger").
------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the laws of the States of Arizona and Delaware permit the
merger of NAC with and into CSK; and
WHEREAS, the respective Boards of Directors of NAC and CSK deem it
desirable and in the best interests of their respective corporations and
stockholders to merge NAC with and into CSK, and have approved this Agreement
for that purpose; and
WHEREAS, this Agreement will be submitted to the stockholders of NAC
and CSK for their approval.
NOW, THEREFORE, in consideration of the covenants, agreements,
representations and warranties contained in this Agreement, and in order to
prescribe the terms
<PAGE>
and conditions of the Merger and the procedures to effectuate the Merger, the
parties hereto agree as follows:
ARTICLE I
TERMS AND EFFECT OF MERGER
--------------------------
Section 1.01 The Merger; Name of Surviving Corporation. NAC and
------------------------------------------
CSK are the constituent corporations as contemplated by the Delaware General
Corporation Law (the "DGCL") and the Arizona Business Corporation Act (the
----
"ABCA"). At the Effective Time (as defined in Section 2.02 of this Agreement)
----
and pursuant to the DGCL and the ABCA, (a) NAC shall be merged with and into CSK
and the separate existence of NAC, except to the extent continued by law, shall
cease, and (b) CSK shall be the "surviving corporation" and shall continue its
corporate existence under the laws of the State of Delaware under the name "CSK
Auto, Inc."
Section 1.02 Certificate of Incorporation of Surviving
-----------------------------------------
Corporation. The Certificate of Incorporation of the surviving corporation
- -----------
shall be the Certificate of Incorporation of CSK in effect at the Effective
Time, which shall remain unchanged and unaffected by the Merger until further
amended as provided by law.
Section 1.03 By-laws of Surviving Corporation. The By-laws of the
--------------------------------
surviving corporation shall be the By-laws of CSK in effect at the Effective
Time, which shall remain unchanged and unaffected by the Merger until amended as
provided by law.
Section 1.04 Directors and Officers of Surviving Corporation.
-----------------------------------------------
From and after the Effective Time, the current Board of Directors of CSK shall
continue to serve as directors of CSK until the first annual meeting of
stockholders of CSK and until their respective successors
-2-
<PAGE>
shall be duly elected and qualify or until their tenure shall be otherwise
terminated in accordance with the By-laws of CSK. From and after the Effective
Time, the current officers of CSK shall continue to serve, in the offices to
which they were elected, at the pleasure of the Board of Directors of CSK.
Section 1.05 Effect of Merger on Capital Stock of Constituent
------------------------------------------------
Corporations. As of the Effective Time, by virtue of the Merger and without any
- ------------
action on the part of the holder of any shares of capital stock of the
constituent corporations:
(a) Each share of common stock, $10.00 par value, of NAC (the "NAC
---
Common Stock") issued and outstanding at and as of the Effective Time shall be
- ------------
converted into the right to receive 12,422.121 fully paid and nonassessable
shares of common stock, par value $.001 per share, of CSK (the "CSK Common
----------
Stock") (collectively, the "Common Stock Share Consideration"). All such
--------------------------------
shares of NAC Stock shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares (a "NAC Common Certificate") shall cease to have
----------------------
any rights with respect thereto, except the right to receive the Common Stock
Share Consideration.
(b) Each share of CSK Common Stock, issued and outstanding at and as
of the Effective Time shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such shares
shall cease to have any rights with respect thereto.
(c) Each share of preferred stock, $1,000.00 par value, of NAC (the
"NAC Preferred Stock" and, together, with the NAC Common Stock, the "NAC Stock")
- -------------------- ---------
issued and outstanding, together with all accrued and unpaid dividends (which
dividends, for the purpose of
-3-
<PAGE>
this subsection, shall be deemed converted into one share of NAC Preferred Stock
for every one thousand dollars ($1,000) of dividends accrued and unpaid) thereon
at and as of June 26, 1996 shall be converted into the right to receive
66.666666 fully paid and nonassessable shares of CSK Common Stock (the
"Preferred Stock Share Consideration" and, together with the Common Stock Share
- ------------------------------------
Consideration, the "Share Consideration" ). All such shares of NAC Preferred
-------------------
Stock shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a certificate representing
any such shares (a "NAC Preferred Certificate" and, together with a NAC Common
-------------------------
Certificate, a "NAC Certificate") shall cease to have any rights with respect
---------------
thereto, except the right to receive the Share Consideration. Upon the
Effective Time, any dividends accrued on the NAC Preferred Stock subsequent to
June 26, 1996 shall be deemed cancelled and the holder thereof shall cease to
have any rights to such dividends.
(d) There will be no outstanding shares of preferred stock, par
value $.001 per share, of CSK, at and as of the Effective Time.
Section 1.06 Exchange of Certificates, Procedures, Etc. (a) CSK
------------------------------------------
shall at the Closing exchange certificates representing the shares of CSK Common
Stock issuable pursuant to the provisions of this Article I as the Share
Consideration for the NAC Certificates to be canceled and retired pursuant to
the provisions of this Article I.
(b) Immediately after the Effective Time, (i) upon surrender of a NAC
Certificate to CSK for cancellation, the holder of such NAC Certificate shall be
entitled to receive in exchange therefor a certificate representing that number
of shares of CSK Common Stock that such holder has the right to receive as the
Share Consideration pursuant to the provisions of this
-4-
<PAGE>
Article I. Until surrendered as contemplated by this Section, each NAC
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive the Share Consideration upon such surrender.
Section 1.07 No Fractional Shares. No certificate or scrip
--------------------
representing fractional shares of CSK Stock shall be issued upon the surrender
for exchange of the NAC Certificates and notwithstanding anything contained in
Section 1.05 to the contrary, the number of shares of CSK Common Stock to which
each holder of NAC Stock (an "NAC Stockholder") shall be entitled at the
---------------
Effective Time shall be rounded (up or down, as the case may be) to the closest
whole number of shares of CSK Common Stock.
Section 1.08 Effect of the Merger. At the Effective Time, the
--------------------
constituent corporations shall become a single corporation and CSK shall
continue to exist as the surviving corporation and shall thereupon and
thereafter, pursuant to the DGCL and the ABCA, have all the rights, privileges,
immunities, powers and franchises, and be subject to all the duties,
liabilities, obligations and penalties, of each of the merging corporations, and
all property, real, personal and mixed, and all debts due on whatever account
and all other chooses in action, and all and every other interest of, or
belonging to or due to each of the constituent corporations shall be vested in
CSK without further act or deed, and CSK shall be subject to all of the
liabilities, obligations and penalties of the respective constituent
corporations, not pursuant to contract but by operation of law, all in the
manner and to the full extent provided by the DGCL and the ABCA. Whenever a
conveyance, assignment, transfer, deed or other instrument or act is necessary
to vest any property or right in the surviving corporation, the directors and
officers of the respective constituent corporations shall execute, acknowledge
and deliver such instruments and perform
-5-
<PAGE>
such acts, for which purpose the separate existence of the constituent
corporations and the authority of their respective directors and officers shall
continue, notwithstanding the Merger.
Section 1.09 Available Surplus. Any surplus of the constituent
-----------------
corporations which was available for the payment of dividends and other
distributions to stockholders immediately prior to the Merger shall continue to
be so available to CSK for such payments to the same extent as before such
Merger, except as otherwise required by law.
Section 1.10 Legend. Each certificate representing shares of CSK
------
Common Stock issued as Share Consideration will contain a legend indicating such
shares have been acquired for investment and not with the view to the
distribution thereof and that they may not be sold, transferred or otherwise
disposed of or encumbered unless registered under the Securities Act of 1933, as
amended (the "1933 Act"), or unless the Company receives an opinion of its
--------
counsel to the effect that no registration is required with respect to the
proposed sale, transfer or other disposition or encumbrance.
ARTICLE II
SUBMISSION TO STOCKHOLDERS;
CLOSING; FILING OF CERTIFICATE OF MERGER
----------------------------------------
Section 2.01 Submission to Stockholders. NAC will call a special
--------------------------
meeting of its stockholders (the "Stockholders Meeting") to be held not less
--------------------
than twenty (20) days after the calling of such meeting, for the purpose of the
adoption of this Agreement by the NAC stockholders, in accordance with Section
251 of the DGCL and Section 10-1103 of the ABCA. In lieu of calling a
Stockholders Meeting, NAC may circulate a unanimous written consent to its
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<PAGE>
stockholders for their adoption of this Agreement. CSK shall obtain the written
consent to its sole shareholder for its adoption of this Agreement. Any such
written consent shall also be deemed a Stockholders Meeting for purposes of this
Agreement.
Section 2.02 Closing; Filing of Certificate of Merger; Effective
---------------------------------------------------
Time. (a) Upon the terms and provisions set forth in this Agreement, the
- ----
constituent corporations shall cause a Certificate of Merger to be duly prepared
in the form attached hereto as Exhibit A and properly executed and delivered for
filing and thereafter duly filed with the Secretary of State of the State of
Delaware, as provided in the DGCL and a Certificate of Merger to be duly
prepared in the form attached hereto as Exhibit B and properly executed and
delivered for filing and thereafter duly filed with the Arizona Corporation
Commission, as provided in the ABCA, as soon as practicable on or after the
Closing Date (as defined below) (said Certificates of Merger being collectively
referred to as the "Certificate of Merger") , pursuant to which Certificate of
---------------------
Merger NAC shall be merged with and into CSK. The Merger shall become effective
upon the later of the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware or the Arizona Corporation Commission or at such
later time thereafter as is provided in such Certificate of Merger (the
"Effective Time").
- ---------------
(b) The closing of the transactions contemplated by this Agreement
(the "Closing") will take place at the office of Parker Chapin Flattau & Klimpl,
-------
LLP at 10:00 A.M. on a date to be mutually agreed upon by NAC and CSK. The date
on which the Closing occurs is referred to herein as the "Closing Date."
------------
-7-
<PAGE>
ARTICLE III
TERMINATION OF THIS AGREEMENT
-----------------------------
Section 3.01 Termination. This Agreement may be terminated at any
-----------
time prior to the Effective Time by mutual consent of CSK and NAC (as determined
by their respective Boards of Directors), notwithstanding favorable action on
the merger contemplated hereby by the stockholders of either or both
corporations, and/or by the Boards of Directors of either or both corporations.
ARTICLE IV
MISCELLANEOUS
-------------
Section 4.01 Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed given if
delivered personally or mailed by certified or registered mail, postage prepaid,
addressed as follows:
If to CSK, to it at:
645 East Missouri Avenue
Phoenix, Arizona 85012
Attn: Mr. James G. Bazlen
If to NAC, to it at:
645 E. Missouri Avenue
Phoenix, Arizona 85012
Attn.: Mr. James G. Bazlen
Section 4.02 Governing Law. This Agreement and all amendments
-------------
thereof shall be governed by, and construed and enforced in accordance with, the
laws of the State of Delaware applicable to contracts made and to be performed
therein.
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<PAGE>
Section 4.03 Counterparts. This Agreement may be executed
------------
simultaneously in one or more counterparts, each of which shall be deemed an
original.
Section 4.04 Modifications, Amendments and Waivers. At any time
-------------------------------------
prior to the Effective Time, if authorized by their respective Boards of
Directors, the parties hereto may, by written agreement, notwithstanding
stockholder approval, amend or supplement any of the provisions of this
Agreement; provided, however, that after this Agreement has been adopted by the
-------- ------- ----
stockholders of NAC and CSK, no material amendment or supplement shall be made
unless such amendment or supplement is also adopted by such stockholders. Any
written agreement with respect to the Merger contemplated hereby shall be
validly and sufficiently authorized for the purpose of this Agreement, if
signed, on behalf of NAC and CSK, by a person or persons authorized to sign this
Agreement.
Section 4.05 Interpretation. The headings contained in this
--------------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, CSK and NAC have caused this Agreement to be
duly executed as of the date first above written.
Attest: NORTHERN AUTOMOTIVE CORPORATION
By:
___________________________ _______________________________
Secretary James G. Bazlen, President
Attest: CSK AUTO, INC.
By:
___________________________ _______________________________
Secretary James G. Bazlen, President
-10-
<PAGE>
Exhibit 3.3
Certificate of Amendment
of
Certificate of Incorporation
of
CSK AUTO, INC.
--------------
It is hereby certified that:
1. The name of the corporation (hereinafter called "Corporation") is
CSK Auto, Inc.
2. The Certificate of Incorporation of the Corporation is hereby
amended by adding a new article:
"ARTICLE FIFTEEN
---------------
The Corporation hereby elects not to be governed by Section 203 of the
General Corporation Act of the State of Delaware."
3. The Corporation has not had a class of voting stock that falls
within any of the categories enumerated in Section 203(b)(4) of the General
Corporation Act nor has it previously elected to be governed by Section 203 of
the General Corporation Act of the State of Delaware.
4. The amendment of the certificate of incorporation herein certified
has been duly adopted in accordance with the provisions of section 228 and 242
of the General Corporation Law of the state of Delaware.
Signed and attested to on the 1st day of August 1996.
/s/ James Bazlen
---------------------------------------
James Bazlen, President
<PAGE>
PARKER CHAPIN FLATTAU & KLIMPL, LLP
COUNSELLORS AT LAW
1211 AVENUE OF THE AMERICAS
NEW YORK, NY 10036-6735
(212) 704-6000
CABLE LAWPARK 175 GREAT NECK ROAD
GREAT NECK, NY 11021
FAX (212) 704-6288 (516) 482-4422
FAX (516) 482-4469
TELEX 5-40347
WRITER'S DIRECT DIAL NUMBER
----------------, 1996
CSK Auto, Inc.
645 E. Missouri Avenue
Phoenix, Arizona 85012
Ladies/Gentlemen:
We have acted as counsel to CSK Auto, Inc. (the "Company") in
connection with the filing of a Registration Statement on Form S-1 (File No.
333-6893) filed by the Company with the Securities and Exchange Commission (the
"Registration Statement") relating to an aggregate of 7,705,000 shares of Common
stock, par value $.001 per share ("Common Stock"), of the Company, including
1,005,000 shares subject to an over-allotment option to be issued and sold by
the Company (the "Shares").
In connection with the foregoing, we have examined, among other
things, the Registration Statement, the proposed Purchase Agreement (the
"Purchase Agreement") filed as Exhibit 1.1 to the Registration Statement and
originals or copies, satisfactory to us, of all such corporate resolutions and
proceedings and of all such agreements, certificates and other documents as we
have deemed relevant and necessary as a basis for the opinion hereinafter
expressed. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity with the original documents of documents submitted to us as
copies or facsimiles thereof. As to any facts material to such opinion, we have
to the extent that relevant facts were not independently established by us,
relied on certificates of public officials and certificates, oaths and
declarations of officers or other representatives of the Company.
<PAGE>
PARKER CHAPIN FLATTAU & KLIMPL, LLP
Based upon the foregoing, we are of the opinion that the Shares
to be sold by the Company pursuant to the Purchase Agreement, if and when paid
for in accordance with the terms of the Purchase Agreement, will be legally
issued, fully paid and non-assessable.
We hereby consent to the use of our name under the caption
"Legal Matters" in the prospectus constituting a part of the Registration
Statement and to the filing of a copy of this opinion as an exhibit thereto.
Very truly yours,
PARKER CHAPIN FLATTAU & KLIMPL, LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 21, 1996 relating to
the financial statements of CSK Auto, Inc., which appears in such Prospectus. We
also consent to the application of such report to the Financial Statement
Schedule for the three years ended January 28, 1996 listed under Item 16(b) of
this Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included this schedule. We also consent to the references to us
under the headings "Experts" and "Selected Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Financial Data."
PRICE WATERHOUSE LLP
Phoenix, Arizona
August 9, 1996
