<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
========== Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MAY 4, 1997 OR
/ / Transition report pursuant to Section 13 or 15(d) of the
========== Securities Exchange Act of 1934 for the transition period
from to
-------- --------
Commission file number
-------------------------
CSK AUTO, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
ARIZONA 86-0221312
- ------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
645 E. MISSOURI AVE. SUITE 400, PHOENIX, ARIZONA 85012
- ---------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (602) 265-9200
- ---------------------------------------------------------------------
N/A
- ---------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) YES /X/ NO / /
-------- --------
(2) YES / / NO /X/
-------- --------
As of June 20, 1997, CSK Auto,Inc. had 50,000 shares of redeemable preferred
stock and 2,000 shares of common stock outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CSK AUTO, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
(UNAUDITED)
MAY 4, FEBRUARY 2,
1997 1997
--------- ----------
<S> <C> <C>
Cash and cash equivalents $ 5,525 $ 5,223
Receivables, net of allowances of $2,050 and $1,768, respectively 27,982 28,511
Inventories 268,977 268,214
Assets held for sale 9,082 5,971
Prepaid expenses and other assets 10,041 10,139
--------- ---------
Total current assets 321,607 318,058
--------- ---------
Property and equipment, net 71,295 71,363
Leasehold interests, net 12,380 12,683
Deferred income taxes 18,546 18,089
Other assets, net 19,004 19,350
--------- ---------
Total assets $ 442,832 $ 439,543
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Accounts payable $ 113,659 $ 128,002
Accrued payroll and related expenses 16,339 15,851
Accrued expenses and other current liabilities 39,848 44,444
Current maturities of amounts due under credit agreement 1,000 1,000
Current maturities of capital lease obligations 7,582 7,007
Due to affiliates 1,000 -
Deferred income taxes 597 597
--------- ---------
Total current liabilities 180,025 196,901
--------- ---------
Amount due under credit agreement 163,000 137,000
Obligations under capital leases 14,326 15,673
Obligations under senior notes 125,000 125,000
Due to affiliates - 1,000
Other 19,372 20,675
--------- ---------
Total non-current liabilities 321,698 299,348
--------- ---------
Commitments and contingencies
Stockholder's deficit:
Redeemable preferred stock, $.01 par value, 206,500 shares authorized 50,000
shares issued and outstanding, liquidation preference redeemable
at $1,000 per share, 12% cumulative dividend 1 1
Common stock, $.01 par value, 20,000 shares authorized, 2,000 shares issued
and outstanding 1 1
Additional paid-in capital 1,501 1,501
Stockholder receivable (5,966) (5,966)
Accumulated deficit (54,428) (52,243)
--------- ---------
Total stockholder's deficit (58,891) (56,706)
--------- ---------
Total liabilities and stockholder's deficit $ 442,832 $ 439,543
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE> 3
CSK AUTO, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------------
MAY 4, 1997 APRIL 28, 1996
----------- --------------
<S> <C> <C>
Net Sales $ 201,613 $189,185
Costs and expenses:
Cost of sales 117,501 113,709
Operating and administrative 77,095 69,450
--------- --------
Operating profit 7,017 6,026
Interest expense 8,142 3,595
--------- --------
Income (loss) before income taxes (1,125) 2,431
Income tax expense (benefit) (457) 932
--------- --------
Net income (loss) $ (668) $ 1,499
========= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 4
CSK AUTO, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------------
MAY 4, 1997 APRIL 28, 1996
----------- --------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) $ (668) $ 1,499
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment 4,227 4,327
Amortization of leasehold interests 303 500
Amortization of deferred financing costs 452 272
Amortization of other deferred charges 89 58
Deferred income taxes (457) 609
Change in operating assets and liabilities:
Accounts receivable 529 715
Inventories (763) (10,555)
Prepaid expenses and other current assets 98 47
Accounts payable (14,343) 9,674
Accrued payroll,accrued expenses and other
current liabilities (2,493) 2,489
Due to affiliate - (1,827)
Other (1,186) (804)
-------- ---------
Net cash provided by (used in) operating activities (14,212) 7,004
-------- ---------
Cash flows used in investing activities:
Capital expenditures (3,606) (1,052)
Expenditures for assets held for sale (3,111) (9,589)
Proceeds from sale of property and equipment and
assets held for sale 429 7,946
Other investing activities (22) _
-------- ---------
Net cash used in investing activities (6,310) (2,695)
-------- ---------
Cash flows provided by (used in) financing activities:
Proceeds provided from debt 26,000 202,510
Payments of debt - (204,923)
Payment of dividends on preferred stock (3,033) -
Payments on capital lease obligations (1,811) (1,339)
Other (332) (213)
-------- ---------
Net cash provided by (used in) financing activities 20,824 (3,965)
-------- ---------
Net increase in cash and cash equivalents 302 344
Cash and cash equivalents, beginning of period 5,223 4,364
-------- ---------
Cash and cash equivalents, end of period $ 5,525 $ 4,708
======== =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE> 5
CSK AUTO, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED MAY 4,1997
CSK Auto, Inc., formerly known as Northern Automotive Corporation (the
"Company"), is a specialty retailer of automotive aftermarket parts and
accessories. At May 4, 1997, the Company operated 586 stores in 14 Western
states. The Company operates as a fully integrated chain under three
tradenames, each of which at one time represented a separate retail chain:
Checker Auto Parts operates in the Southwest and Rocky Mountain states;
Schuck's Auto Supply operates in the Pacific Northwest; and Kragen Auto
Parts operates primarily in California. The Company is a wholly-owned
subsidiary of CSK Group, Ltd. ("Holdings").
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included
herein have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"), but
do not include all information and footnotes required by generally accepted
accounting principles. In the opinion of management,the condensed
consolidated financial statements reflect all adjustments, which are of
a normal recurring nature, necessary for a fair presentation of the
Company's financial position and the results of its operations. The
accompanying condensed consolidated financial statements should be read
in conjunction with the financial statements and related notes thereto
for the fiscal year ended February 2,1997, as included in the Company's
filing on Form S-4 which became effective May 13, 1997.
2. INVENTORIES
Inventories are valued at the lower of cost or market, cost being
determined utilizing the last-in,first-out (LIFO) method. An actual
valuation of inventory under the LIFO method can only be calculated at the
end of a fiscal year based upon the inventory levels and costs at that time.
Accordingly, interim LIFO calculations included herein are based on
management's estimates of expected year-end inventory levels and costs. The
replacement cost of inventories approximated $226.4 million and $225.6
million at May 4, 1997 and February 2, 1997, respectively.
3. REGISTRATION AND EXCHANGE OF SENIOR SUBORDINATED NOTES
On October 30, 1996, the Company issued $125.0 million of 11% Senior
Subordinated Notes (the "Old Notes"). The Old Notes were sold in a
transaction not registered under the Securities Act of 1933, as amended (the
"Act") in reliance upon an exemption under the Act.
Pursuant to a Registration Rights Agreement entered into by the Company, the
Company's subsidiaries and the initial purchasers of the Old Notes, the
Company was required to offer to exchange all outstanding 11% Senior
Subordinated Notes, due November 1, 2006 for 11% Series A Senior
Subordinated Notes, due November 1, 2006 (the "Notes") in a transaction
registered under the Act. The Company's registration statement was filed
with the SEC on February 28, 1997 and declared effective on May 13, 1997.
The declaration of effectiveness commenced an Exchange Period for the tender
of Old Notes for Notes which expired on June 16, 1997 with all Old Notes
having been tendered. The terms of the Notes are substantially identical in
all material respects to the terms of the Old Notes except that the Notes
are expected to be more readily transferable as a result of the registration
of their issuance under the Act.
<PAGE> 6
CSK AUTO, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF CSK GROUP, LTD.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
All of the Company's subsidiaries have fully and unconditionally guaranteed
the Old Notes and the Notes on a joint and several basis. The subsidiaries
do not have any material assets or liabilities or conduct any material
operations. As management believes that separate financial information
regarding these subsidiaries is immaterial and that the guarantees do not
enhance the likelihood that the interest on or principal of the Old Notes or
the Notes will be paid, no separate financial information regarding the
Company's subsidiaries has been presented herein.
4. EARNINGS PER SHARE
Comparative earnings per share have not been presented because the
information is not considered to be meaningful.
<PAGE> 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company's business is seasonal in nature, with the highest sales occurring
in the summer months of June through August when average weekly sales per store
have historically been approximately 15% higher than in the slowest months
months of December through February. The Company's business is also affected by
weather conditions. While unusually severe weather tends to soften sales as
elective maintenance is postponed during such periods, extremely hot and cold
weather tends to enhance sales by causing parts to fail and sales of seasonal
products to increase.
Results of Operations
The following table expresses the statements of operations as a percentage of
sales for the periods shown:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------
MAY 4, 1997 APRIL 28, 1996
----------- --------------
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of sales 58.3% 60.1%
Operating and administrative 38.2% 36.7%
----- -----
Operating profit 3.5% 3.2%
Interest expense 4.0% 1.9%
----- -----
Income (loss) before income taxes -0.5% 1.3%
Income tax expense (benefit) -0.2% 0.5%
----- -----
Net income (loss) -0.3% 0.8%
===== =====
</TABLE>
Net Sales for the thirteen weeks ended May 4, 1997 ("first quarter of fiscal
1997") increased $12.4 million or 6.6% over Net Sales for the thirteen week
period ended April 28, 1996 as the result of an increase in comparable store
sales of 4.2% or $7.8 million and an increase in net sales from new stores of
$4.6 million. Sales to commercial customers increased 33.0% to $27.1 million for
the thirteen weeks ended May 4, 1997 from $20.3 million for the comparable
period of fiscal 1996. During the first quarter of fiscal 1997, the Company
opened 8 new stores, relocated 8 stores to larger facilities and closed 2 stores
in addition to those closed due to relocations. As of May 4, 1997, the Company
had 586 stores in operation.
<PAGE> 8
Gross profit for the first quarter of fiscal 1997 was $84.1 million or 41.7% of
net sales, compared to $75.5 million or 39.9% of net sales for the comparable
period of fiscal 1996. The increase in gross profit percentage resulted from an
increase in the sales of automotive hard parts which produce a higher gross
profit percentage than other product categories. Gross profit was also favorably
impacted by continued improvement in efficiencies realized from the new
warehousing and distribution systems. Warehouse and distribution costs decreased
as a percentage of net sales to 3.6% for the first quarter of fiscal 1997 from
4.0% for the comparable period of fiscal 1996. The Company has also been able to
obtain reduced product pricing from certain of its vendors as a result of the
Company's improving financial performance and quicker payment of accounts
payable.
Operating and administrative expenses increased by $7.6 million to 38.2% of net
sales for the first quarter of fiscal 1997 compared to 36.7% of net sales for
the comparable period of fiscal 1996. This increase was primarily the result of
increased advertising expense, the increased costs of the new store based
information systems and the incremental operating costs of new stores.
Advertising expenditures increased by $2.2 million during the first fiscal
quarter of 1997 due to an increase in television and radio advertising.
Operating profit increased to $7.0 million or 3.5% of net sales for the first
quarter of fiscal 1997 compared to $6.0 million or 3.2% of net sales for the
comparable period of fiscal 1996.
Interest expense for the first quarter of fiscal 1997 totaled $8.1 million
compared to $3.6 million for the first quarter of fiscal 1996. The increase in
interest expense was the result of higher average effective interest rates and
the issuance of approximately $192.6 million of new debt primarily in connection
with certain acquisition and financing transactions more fully described in the
Company's filing on Form S-4, dated May 13, 1997.
As a result of the above factors, a net loss of $0.7 million was realized for
the first quarter of fiscal 1997 compared to net income of $1.5 million for the
first quarter of fiscal 1996.
Liquidity and Capital Resources
The Company's primary cash needs have been for the funding of working capital
requirements (primarily inventory) and store fixtures and leasehold improvements
associated with its store repositioning and expansion program, the expansion of
its sales to commercial customers and the increase in the number of hard parts
SKU's in its stores. Historically, the Company financed its growth and
infrastructure requirements through internally generated funds, funds borrowed
under its various credit agreements, funds obtained from an affiliate under
common ownership through sale-leaseback and other transactions and lease
arrangements with third parties.
The Company believes that it has sufficient liquidity to fund its debt service
obligations and implement its growth strategy. In addition to its operating cash
flow, the Company has access to a $50.0 million off-balance sheet revolving
lease facility provided by an affiliate under common ownership to support its
store relocation and store expansion plan. The Company believes that this
facility will provide the capital necessary to meet its growth and relocation
plans for the foreseeable future. The terms of the facility were set in the
arm's-length negotiations leading to the acquisition, and the Company believes
such terms to be as favorable to it as could be obtained from unaffiliated third
parties. The facility may be terminated at the option of either party to the
agreement upon, among other things, the occurrence of any initial public
offering of any class of the Company's equity securities or upon the making of a
material beneficial modification to the Senior Credit Facility. As of May
4, 1997,
<PAGE> 9
availability under the revolving lease facility had been reduced by $11.1
million relating to 18 new store sites in various stages of completion.
In the first quarter of fiscal 1997, net cash used in operating activities was
$14.2 million compared to $7.0 million of cash provided by operating activities
in the first quarter of fiscal 1996. The largest component of the change in cash
flow from operating activities is accounts payable, where $14.3 million of cash
was used in 1997 to reduce accounts payable, while $9.7 million of cash was
generated in fiscal 1996 as the result of increasing accounts payable balances.
Net cash used in investing activities totaled $6.3 million in the first quarter
of fiscal 1997 compared to $2.7 million in the first quarter of fiscal 1996. The
increase in cash used in investing activities was the result of generally larger
disbursements for capital expenditures and a change in the method of financing
new store acquisitions as a result of the off-balance sheet revolving lease
facility. Net cash provided by financing activities totaled $20.8 million in the
first quarter of fiscal 1997 compared to net cash used in investing activities
of $4.0 million in the first quarter of fiscal 1996. In the 1997 quarter, net
cash provided by financing activities is comprised primarily of $26.0 million of
revolving credit facility borrowings, $3.0 million of dividend payments on the
Company's preferred stock, $1.8 million of payments on capital lease obligations
and $0.3 million of other activity. In the 1996 quarter, payments of debt and
capital lease obligations exceeded borrowings by approximately $3.8 million and
$0.2 million of other financing activities activities were incurred.
<PAGE> 10
Part II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS NONE
Item 2. CHANGES IN SECURITIES NONE
Item 3. DEFAULTS UPON SENIOR SECURITIES NONE
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE
Item 5. OTHER INFORMATION NONE
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.01* Amended and Restated Articles of Incorporation of the Company.
3.02* Amended and Restated By-laws of the Company
4.01* Indenture by and among the Company, Kragen Auto Supply Co.
("Kragen"), Schuck's Distribution Co. ("Schuck's"), and Wells
Fargo Bank, N.A., as Trustee, dated as of October 30, 1996.
4.02* Form of 11% Series A Senior Subordinated Note, Due 2006.
4.03* Registration Rights Agreement, dated October 30, 1996 among the
Company, Kragen, Schuck's and the Initial Purchasers named
therein.
11.01 Statement of Computation of Ratio of Earnings to Fixed Charges
27.01 Financial Data Schedule
(b) Reports on Form 8-K: None
--------------------------------
* Incorporated herein by reference to the Company's registration
statement on Form S-4 (File No. 333-22511)
SIGNATURE
--------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By : /s/ James G. Bazlen
--------------------------
James G. Bazlen
President and Chief Financial Officer
DATED : June 22, 1997
<PAGE> 1
EXHIBIT 11.01
CSK AUTO, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
--------------------------------
MAY 4, 1997 APRIL 28, 1996
----------- --------------
<S> <C> <C>
Income (loss) before income taxes $(1,125) $2,431
Fixed charges
Interest expense 8,142 3,595
Interest portion of rentals 5,256 4,815
-------- ------
Total fixed charges 13,398 8,410
-------- ------
Earnings before income taxes and fixed charges $12,273 $10,841
Ratio of earnings to fixed charges (1) - 1.3
</TABLE>
(1) The ratio of earnings to fixed charges has not been computed for the
thirteen weeks ended May 4, 1997 since earnings were not sufficient to
cover fixed charges. The coverage deficiency was $1,125.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS, CONDENSED CONSOLIDATED BALANCE SHEET AND
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS
ENDED MAY 4, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1998
<PERIOD-START> FEB-03-1997
<PERIOD-END> MAY-04-1997
<CASH> 5,525
<SECURITIES> 0
<RECEIVABLES> 30,032
<ALLOWANCES> 2,050
<INVENTORY> 268,977
<CURRENT-ASSETS> 321,607
<PP&E> 155,372
<DEPRECIATION> (84,077)
<TOTAL-ASSETS> 442,832
<CURRENT-LIABILITIES> 180,025
<BONDS> 0
0
1
<COMMON> 1
<OTHER-SE> (58,983)
<TOTAL-LIABILITY-AND-EQUITY> 442,832
<SALES> 201,613
<TOTAL-REVENUES> 201,613
<CGS> 117,501
<TOTAL-COSTS> 194,596
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,142
<INCOME-PRETAX> (1,125)
<INCOME-TAX> (457)
<INCOME-CONTINUING> (668)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (668)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
