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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 001-13927
CSK AUTO CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 86-0765798
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
645 E. MISSOURI AVE. SUITE 400, PHOENIX, 85012
ARIZONA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED:
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COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of April 13, 1999, the aggregate market value of the Company's common
stock held by non-affiliates was approximately $405.6 million. For purposes of
the above statement only, all directors and executive officers of the registrant
are assumed to be affiliates. As of April 13, 1999, there were 27,784,834 shares
of the Company's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following public filings are incorporated by reference into this Report
on Form 10-K:
- Portions of the Company's Registration Statement on Form S-1 (File No.
333-43211) are incorporated by reference into Part IV of this Form 10-K.
- Portions of the Company's Registration Statement on Form S-1 (File No.
333-67231) are incorporated by reference into Part IV of this Form 10-K.
- Portions of the Company's definitive Proxy Statement on Schedule 14A,
with respect to the Company's 1999 Annual Meeting of Stockholders, are
incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......... 12
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters................................................... 13
Item 6. Selected Consolidated Financial Data........................ 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 24
Item 8. Consolidated Financial Statements and Supplementary Data.... 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 50
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 50
Item 11. Executive Compensation...................................... 50
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 50
Item 13. Certain Relationships and Related Transactions.............. 50
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 50
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NOTE CONCERNING FORWARD-LOOKING INFORMATION
Some of the information in this Report on Form 10-K contains
forward-looking statements that involve substantial risks and uncertainties. You
can identify these statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate" and "continue" or similar words.
You should read statements that contain these words carefully because they: (1)
discuss our future expectations; (2) contain projections of our future results
of operations or of our financial condition; or (3) state other
"forward-looking" information. We believe that it is important to communicate
our future expectations to our investors. However, there may be events in the
future that we are not able to accurately predict or over which we have no
control, the occurrence of which could have a material adverse effect on our
business, operating results and financial condition. These events may include
future operating results, our efforts to address Year 2000 issues and potential
competition, among other things. Factors that might cause actual results to
differ materially from those in such forward-looking statements include, but are
not limited to, those discussed in Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
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PART I
ITEM 1. BUSINESS
GENERAL
We are the largest retailer of automotive parts and accessories in the
Western United States and one of the largest retailers of such products in the
United States based, in each case, on our number of stores. As of January 31,
1999, we operated 807 stores as one fully integrated company under three brand
names:
- Checker Auto Parts, founded in 1969 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.
We offer a broad selection of national brand name and private label
automotive products for domestic and imported cars, vans and light trucks. Our
products include new and remanufactured automotive replacement parts,
maintenance items and accessories. Most of our sales are to do-it-yourself
customers, although our commercial sales program focusing on sales to auto
repair professionals and fleet owners represents a significant and increasing
part of our business. Our stores typically offer between 13,000 and 17,000
stock-keeping units, or SKUs. Our operating strategy is to offer our products at
everyday low prices and at conveniently located and attractively designed
stores, supported by highly trained, efficient and courteous customer service
personnel. We do not sell tires or perform automotive repairs.
AUTOMOTIVE AFTERMARKET INDUSTRY
We are a retailer of aftermarket automotive products such as replacement
parts, maintenance items and accessories. The term aftermarket distinguishes our
sales from those items sold as part of the original sale of a car or truck. We
believe that the automotive aftermarket for these items is growing because of
increases in:
- The size and age of the country's automotive fleet;
- The number of miles driven annually per vehicle;
- The purchase prices of new cars;
- The cost of replacement parts; and
- Labor costs associated with parts, installation and maintenance.
There are many companies selling automotive aftermarket products. We
believe, however, that the industry is consolidating as national and regional
specialty retail chains gain market share at the expense of smaller independent
retailers and less specialized mass merchandisers. Automotive specialty
retailing chains like ours, which have multiple locations in a given market
area, enjoy competitive advantages in purchasing, distribution, advertising and
marketing compared to most small independent retailers. In addition, the recent
significant increase in the variety of domestic and imported vehicle makes and
models has increased the number of automotive replacement parts. This makes it
difficult for smaller independent retailers and less specialized mass
merchandise chains to maintain inventory selection broad enough to meet customer
demands. We believe this has created a competitive advantage for us and for
other automotive specialty retailing chains that have the distribution capacity
and sophisticated information systems to stock and deliver a large number of
products in a timely manner.
MARKETING AND MERCHANDISING STRATEGY
Our marketing and merchandising strategy is to build market share by
providing a broad selection of national brand name and private label products at
everyday low prices. We offer these products at conveniently located and
attractively designed stores, staffed by highly trained, efficient and courteous
employees.
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CUSTOMER SERVICE
We are a customer-oriented retailer dedicated primarily to do-it-yourself
consumers with a significant and increasing focus on commercial customers. We
try to enhance customer service by use of our sophisticated product distribution
and store support systems, as well as our extensive training programs.
We believe that the recruiting, training and retention of high quality
sales associates is required if our business is to be successful. We operate
training and incentive programs to encourage the development of technical
expertise by our sales associates so they can effectively advise customers on
product selection and use.
CSK University, our sales associate development program, is dedicated to
the continuous education of store associates through structured on-the-job
training and formal classroom instruction. The curriculum focuses on four areas
of the associate's development:
- Customer service skills;
- Basic automotive systems;
- Advanced automotive systems; and
- Management development.
Much of the training is delivered through formal classes in 21 training
centers that are fully equipped with the same systems as are in our stores. We
believe that our training programs enable sales associates to provide a high
level of service to a wide variety of customers ranging from less informed
do-it-yourself consumers to more sophisticated purchasers requiring diagnostic
advice. We also provide continuing training programs for store managers and
district managers designed to assist them in increasing store-level efficiency
and improving their potential for promotion. In addition, we require periodic
meetings of district and store managers to facilitate and enhance communications
within our organization. Approximately 1,800 of our associates have passed the
ASE-P2 test, a nationally recognized certification for auto parts technicians.
In order to satisfy our customers, we adopted several service initiatives
including 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. Our
significant investments in associate training and store-level information
systems enable our in-store personnel to devote more time to attending to our
customers' automotive needs.
We use our centralized database as a source to make approximately 95,000
calls annually to customers inquiring as to their overall satisfaction with our
sales associates, pricing, product selection and quality. In addition, the
results of customer satisfaction surveys are provided to each store and the
appropriate management personnel to ensure that customer service levels remain a
store focus.
PRODUCT SELECTION
Our stores have a broad selection of national brand name products in order
to generate customer traffic and appeal to our commercial customers. In
addition, we stock a large selection of high quality private label products that
appeal to value-conscious customers. Each store offers an extensive product
line, including automotive replacement parts such as starters, alternators,
shock absorbers, mufflers, brakes, spark plugs, filters 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. Sales of replacement parts account for approximately 60% of our sales.
Replacement parts typically generate higher gross profit margins than
maintenance items or general accessories. We are increasing our sales of
replacement parts, as a percentage of total sales, by offering a wider selection
of replacement parts and by increasing sales to commercial customers.
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PRODUCT AVAILABILITY
Our stores offer between 13,000 and 17,000 SKUs of national brand name and
private label automotive products. If a store does not carry a specific part,
store associates are able to use our surround store inventory program to record
the sale, reserve the part and direct the customer to pick it up from a store in
the same market or at one of our nearby depots.
We have continued to expand and improve our delivery system and have
increased our number of strategically located priority parts depots to 32. This
has led to better customer service by making available up to an additional
200,000 products on a same-day delivery basis to over 80% of our stores and
1,000,000 additional products on a next-day delivery basis to all of our stores.
This has also allowed us to increase sales to commercial accounts due to the
availability of a greater number of replacement parts. Our priority parts
operation handles approximately 212,000 inquiries each week. Store associates
are able to electronically inquire on price and availability and order parts
from the priority parts depots through our electronic parts catalog and receive
immediate confirmation of availability without having to make telephone
inquiries.
We have classified our product mix into 110 separate categories through a
merchandising program designed to determine the optimal inventory mix at each
individual store based on that store's historical sales. We believe that we can
improve store sales, gross profit margin and inventory turnover by tailoring
individual store inventory mix based on historical sales patterns for each of
the 110 product categories.
PRICING
Our pricing philosophy is that we should not lose a customer because of
price. Our pricing strategy is to offer everyday low prices at each of our
stores. Part of this strategy is to beat any competitor's lower price by 5%. As
a result, we closely monitor our competitors' pricing levels to ensure
competitive pricing in all of our stores. Our entry-level products offer
excellent value by meeting standard quality requirements at low prices. In
addition, our sales associates are encouraged to offer alternative products at
slightly higher price points. These products typically provide extra features,
improved performance, an enhanced warranty or are of national brand recognition.
In the third quarter of fiscal 1997, we implemented our precision pricing
program which analyzes prices at the store level rather than at the market or
chain level. This initiative enables us to establish pricing levels at each
store based upon that store's local market competition.
ADVERTISING
We support our marketing and merchandising strategy through print
advertising, in-store promotional displays and an increasing emphasis on radio
and television advertising. The print advertising consists of monthly color
circulars that are produced by our in-house advertising department and that
contain redeemable coupons. We also advertise on radio, television and
billboards primarily to reinforce our image and name recognition. Television
advertising is targeted to sports programming and radio advertising primarily is
aired during commuting hours. Advertising efforts include Spanish language
television and radio as well as bilingual store signage. In-store signs and
displays are used to promote products, identify departments, and to announce
store specials. We also sponsor a National Hot Rod Association Funny Car, a Top
Fuel Car and we have been designated the "Official Auto Parts Store of the
NHRA." We have web sites on the Internet at:
- http://www.cskauto.com;
- http://www.checkerauto.com;
- http://www.schucks.com; and
- http://www.kragen.com.
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STORE-BASED INFORMATION SYSTEMS
Over the past several years, we installed several store-level information
systems, which have improved store labor productivity and customer service.
These systems are described below.
ELECTRONIC PARTS CATALOG
Our electronic parts catalog is a software-based system that identifies the
location and availability of over one and a half million parts. The electronic
parts catalog is a user-friendly tool that enables our sales associates to
assist customers in parts selection and ordering based on simple input of the
year, model and engine type and application needed. Once provided with this
basic information, the electronic parts catalog displays which part is needed
and whether it is located in the store. In the event a particular product is
unavailable at a store, the electronic parts catalog indicates whether it can be
obtained at a nearby store, priority parts depot, through 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 electronic parts catalog also displays related parts that the
sales associates can recommend to the customer for purchase and prints parts
lists for the customer. Our electronic parts catalog system is integrated with
our point of sale system and centralized database. This integration improves
customer service by:
- Reducing checkout time by fully automating the ordering process between
the parts counter and the point of sale register;
- Allowing the store associate to order parts electronically with immediate
confirmation of availability and/or delivery; and
- Providing up-to-the-minute pricing of products.
POINT OF SALE SYSTEM
We installed a point of sale system consisting of cash registers and
sophisticated software in all of our stores, which electronically record and
report customer transactions and are tied to our electronic parts catalog and
the central inventory system. This point of sale system improves store
productivity and customer service by streamlining in-store procedures and
eliminating handwritten record keeping. This system also allows for paperless
transactions and electronic updating of warranty information. In addition, the
point of sale software tracks the history of individual customer purchases for
use in regionalized marketing and merchandising programs.
RETAIL PAPERLESS MANAGEMENT SYSTEM
Our retail paperless management system is a store-based software system
used to improve store efficiency. This system provides for interactive store
associate development and testing, communication via company-wide e-mail,
knowledge-based interviewing of associate applicants, automated associate time
and attendance recording and forms automation.
LABOR SCHEDULING SYSTEM
We utilize a sophisticated labor scheduling system that allocates labor
hours based on factors including forecasted sales and customer traffic counts.
We believe this system enables us to provide superior customer service while
providing for improved labor productivity.
SATELLITE COMMUNICATIONS NETWORK
Our satellite communications network links all of our stores with our
corporate office. The satellite network enables us to efficiently obtain and
deliver to our stores all file transfers, including pricing down-loads, sales
information updates and interactive transactions such as electronic parts
ordering. The system also
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broadcasts common files to all stores simultaneously to update our electronics
parts catalog. In addition, the satellite network significantly increases the
speed of credit card and check authorization.
CALL CENTER
Our centralized call center provides store personnel at selected
high-volume stores the option to reroute customer calls to a central location
during the store's busiest hours of operation. Call center associates perform
all functions that store personnel 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 electronically transmit it
to the store, so that the customer can pick up the requested product at his
local store. Use of the call center allows sales associates to give their
undivided attention to customers at the store while call-in customers are
serviced directly by call center associates.
STORE OPERATIONS
Our stores are divided into seven geographic regions: Southwest, Rocky
Mountain, Northwest, Southern California, Coastal California, Los Angeles and
Northern California. Each region is administered by a regional manager, each of
whom oversees six to nine district managers. Each of our district managers has
responsibility for between 4 and 20 stores.
The geographic distribution of our stores and the tradenames under which
they operated, as of January 31, 1999, are set forth in the table below.
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SCHUCK'S CHECKER KRAGEN COMPANY
AUTO SUPPLY AUTO PARTS AUTO PARTS TOTAL
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California.............................. 2 1 384 387
Washington.............................. 88 -- -- 88
Arizona................................. -- 86 -- 86
Colorado................................ -- 66 -- 66
Utah.................................... -- 30 -- 30
Oregon.................................. 33 -- -- 33
Texas................................... -- 26 -- 26
New Mexico.............................. -- 23 -- 23
Idaho................................... 17 6 -- 23
Nevada.................................. -- 14 7 21
Montana................................. -- 9 -- 9
Alaska.................................. 8 -- -- 8
Wyoming................................. -- 7 -- 7
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Total......................... 148 268 391 807
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Our stores are generally 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). The average store employs
approximately 10 to 20 employees, including a store manager, two assistant store
managers and a staff of full-time and part-time employees.
STORE FORMATS
Our stores are generally located in high visibility, high traffic strip
shopping centers or in freestanding units adjacent to strip shopping centers.
The stores, which range in size from 2,800 to 27,000 square feet, average
approximately 6,900 square feet in size and offer between 13,000 and 17,000
SKUs.
We have three prototype store designs which are 6,000, 7,000 and 8,000
square feet in size. The store size for a given new location is selected based
upon sales volume expectations determined through demographics
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and the detailed market analysis that we prepare as part of our site selection
process. The following table categorizes our stores by size, as of January 31,
1999:
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STORE SIZE NUMBER OF STORES
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10,000 sq. ft. or greater.......................... 70
8,000-9,999 sq. ft................................. 155
6,000-7,999 sq. ft................................. 270
5,000-5,999 sq. ft................................. 196
Less than 5,000 sq. ft............................. 116
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807
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Approximately 61% of our 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 replacement parts inventory. The replacement parts
inventory area is fronted by a counter staffed by knowledgeable parts personnel
and is equipped with the electronic parts catalog. The remaining selling space
contains gondolas for accessories and maintenance items, including oil and air
filters, additives, waxes and other items, together with specifically designed
shelving for batteries and, in many stores, oil products.
STORE GROWTH STRATEGY
Our store growth strategy is focused on our existing markets and includes:
- Opening new stores;
- Relocating smaller stores to larger stores at better locations; and
- Expanding selected stores.
We have identified most of our stores smaller than 5,000 square feet as
future relocation or expansion priorities.
Our market strategy group, which is a part of our real estate department,
utilizes a sophisticated, market-based approach that identifies and analyzes
potential store locations based on detailed demographic and competitive studies.
These demographic and competitive studies include analysis of population
density, growth patterns, age, per capita income, vehicle traffic counts and the
number and type of existing automotive-related facilities, such as automotive
parts stores and other competitors within a pre-determined radius of the
potential new location. These potential locations are compared to our existing
locations to determine opportunities for opening new stores and relocating or
expanding existing stores.
We believe that the large number of small operators in our industry has
enabled us to effectively pursue an opportunistic acquisition strategy. We focus
our acquisition efforts in (1) existing markets to achieve further market
penetration in a timely and cost-effective manner without adding additional
retail square footage, and (2) contiguous markets to permit further leveraging
of our established infrastructure over an increasing sales base.
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The following table sets forth our store development activities during the
periods indicated:
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FISCAL YEAR
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1998 1997 1996
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Beginning stores............................................ 718 580 566
New stores.................................................. 94 65 19
Relocated stores............................................ 31 36 37
Acquired stores............................................. 2 82 --
Closed stores (including relocated stores).................. (38) (45) (42)
--- --- ---
Ending stores............................................... 807 718 580
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Expanded stores............................................. 5 3 8
Total new, relocated and expanded stores.................... 130 104 64
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We believe that substantial growth opportunities exist in our current
markets and that our store growth strategy will increase our name recognition
and market penetration while we benefit from economies of scale in advertising,
management and distribution costs. We opened, relocated or expanded 130 stores
in fiscal 1998 as compared to 104 stores in fiscal 1997. We plan to continue to
accelerate our store growth strategy and expect to open, relocate or expand
approximately 150 stores in fiscal 1999. As of January 31, 1999, we had executed
purchase contracts or leases for 49 sites, were in various stages of negotiation
for 81 additional sites and had identified numerous potential additional sites
for store growth. New stores generally become profitable during the first year
of operation.
COMMERCIAL SALES PROGRAM
In addition to our primary focus on serving the do-it-yourself consumer, we
have significantly increased our marketing efforts to the commercial customer in
the automotive replacement parts market. The commercial market constitutes in
excess of 50% of the annual sales in the automotive aftermarket and is currently
growing at a faster rate than the do-it-yourself market. Our commercial sales
program, which is intended to facilitate penetration of this market, 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 our stores.
We have made a significant commitment to this portion of our business and
upgraded the information systems capabilities available to the commercial sales
group. In addition, we employ one district sales manager for approximately every
five stores that have a commercial sales center. A district sales manager is
responsible for servicing existing commercial accounts and developing new
commercial accounts. In addition, at a minimum each commercial sales center has
a dedicated in-store salesperson, driver and delivery vehicle.
We believe we are well positioned to effectively and profitably service
commercial customers, who typically require a higher level of customer service
and broad product availability. The commercial market has traditionally been
serviced primarily by jobbers. Recently, however, automotive specialty retailing
chains, such as our company, have entered the commercial market. The chains
typically have multiple locations in given market areas and maintain a broad
inventory selection. We believe we have significant competitive advantages in
servicing the commercial market because of our experienced sales associates,
conveniently located stores, attractive pricing and ability to consistently
deliver a broad product offering with an emphasis on national brand names.
As of January 31, 1999, we operated commercial service centers in 509 of
our stores. Our sales to commercial accounts (including sales by stores without
commercial service centers) increased 35% to $155.8 million in fiscal 1998 from
$115.4 million in fiscal 1997.
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PURCHASING
Merchandise is selected from over 300 suppliers and purchased for all
stores by personnel at our corporate headquarters in Phoenix, Arizona. No one
class of product and no single supplier accounted for as much as 10% of our
purchases in fiscal 1998.
Our 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 being sent by a
computer facsimile interface. Our store replenishment system generates orders
based upon store on-hand and store model stock. This includes an automatic model
stock adjustment system utilizing historical sales, seasonality and store
presentation requirements. We also can allocate seasonal and promotional
merchandise based upon a store's history of prior promotional and seasonal
sales.
Our stores offer products with nationally recognized, well-advertised brand
names, such as Armor All, Autolite, AC Delco, Castrol, Dayco, Exide, Fel Pro,
Fram, Havoline, Mobil, Monroe, Pennzoil, Prestone, Quaker State, RayBestos,
Slick 50, Stant, Sylvania, Turtle Wax and Valvoline. In addition to brand name
products, our 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, we believe that our private label products are of a
quality that is comparable to such brand name products.
We have increased our gross profit margin over the last several years
primarily as a result of obtaining lower product acquisition costs, more
favorable vendor terms, cash discounts from vendors, efficiencies from our
warehouse and distribution system and improvements in product mix. We believe
that the improved vendor terms are primarily the result of our improved
financial performance and stronger capitalization and growth in our store count
and purchase volume. Our gross profit margin increased from 39.6% of net sales
in fiscal 1995 to 47.1% of net sales in fiscal 1998.
WAREHOUSE AND DISTRIBUTION
Our warehouse and distribution system utilizes bar coding, radio frequency
scanners and sophisticated conveyor and put-to-light systems. We instituted
engineered labor standards and incentive programs in each of our distribution
centers which have contributed to improved labor productivity. Each store is
currently serviced by one of our two main distribution centers, with the
regional distribution centers handling bulk materials, such as oil. All of our
merchandise is shipped by vendors to our distribution centers, with the
exception of batteries, which are shipped directly to stores by the vendor. We
have sufficient warehouse and distribution capacity to meet the requirements of
our growth plans for the foreseeable future.
The following table sets forth certain information relating to our two main
distribution centers as of January 31, 1999:
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NUMBER NUMBER OF
DISTRIBUTION SIZE OF STORES FULL-TIME
CENTER AREA SERVED (SQ. FT.) SERVED EMPLOYEES
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<S> <C> <C> <C> <C>
Phoenix, AZ Arizona, Colorado, Idaho, Nevada, New Mexico, 273,520 374 320
California, Texas, Utah
Dixon, CA California, Nevada, Washington, Oregon, Idaho, 325,500 433 342
Montana, Wyoming, Alaska
------- --- ---
599,020 807 662
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</TABLE>
We have the ability to expand the Phoenix distribution center by
approximately 80,000 square feet and the Dixon distribution center by 160,000
square feet.
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ASSOCIATES
As of January 31, 1999, we employed approximately 7,300 full-time
associates and 3,250 part-time associates. Approximately 84% of these personnel
are employed in store level operations, 8% in distribution and 8% in our
corporate headquarters, including our call center and priority parts operation.
We have never experienced any material labor disruption and believe that
our labor relations are very good. Except for 399 associates located at
approximately 40 stores in the San Jose, California market, who have been
represented by a union for more than 19 years, none of our personnel are
represented by a labor union.
COMPETITION
We compete principally in the do-it-yourself sector of the automotive
aftermarket which is highly fragmented and generally very competitive. We
compete primarily with national and regional retail automotive parts chains
(such as AutoZone, 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.). We believe that chains of
automotive parts stores like ours, with multiple locations in regional markets,
have competitive advantages in marketing, product 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. We believe 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 our business are store
location, customer service, product selection, availability, quality and price.
While we believe that we compete effectively in our 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.
TRADE NAMES, SERVICE MARKS AND TRADEMARKS
We own and have registered the service mark "Schuck's" with the United
States Patent and Trademark Office for use in connection with the automotive
parts retailing business. We have the right 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, we own and
have registered numerous trademarks with respect to many of our private label
products. We believe that our various tradenames, service marks and trademarks
are important to our merchandising strategy, but that our business is not
otherwise dependent on any particular service mark, tradename or trademark.
There are no infringing uses known by us that materially affect the use of such
marks.
ENVIRONMENTAL MATTERS
We are subject to various federal, state and local laws and governmental
regulations relating to the operation of our business, including those governing
recycling of batteries and used lubricants, and regarding ownership and
operation of real property. We handle hazardous materials during our operations,
and our customers may also use or bring hazardous materials onto our properties.
In addition, while we do not service automobiles, we do sublease to third
parties pre-existing service bays at a small number of store locations. These
third parties are required to dispose of certain items, including used
batteries, lubricants and oils in accordance with applicable environmental
regulations. We currently provide a recycling program for batteries and for the
collection of used lubricants at certain of our stores as a service to our
customers pursuant to agreements with third-party vendors. Pursuant to the
agreements, the batteries and used lubricants are collected by our associates,
deposited into vendor-supplied containers/pallets and then disposed of by the
third-party vendors. Our agreements with such vendors are designed to limit our
potential liability under applicable environmental regulations for any harm
caused by the batteries and lubricants to off-site properties
10
<PAGE> 12
or even on-site when such failure is the fault of the vendor. Many of the
agreements provide us with indemnification against liability that we may incur
in connection with the disposal of such items.
Under environmental laws, a current or previous owner or operator of real
property may be liable for the cost of removal or remediation of hazardous or
toxic substances on, under, or in such property. Such laws often impose joint
and several liability and may be imposed without regard to whether the owner or
operator knew of, or was responsible for, the release of such hazardous or toxic
substances. We do not believe that compliance with such laws and regulations has
had a material impact on our operations to date, but there can be no assurance
that future compliance with such laws and regulations will not have a material
adverse effect on us.
ITEM 2. PROPERTIES
The following table sets forth certain information concerning our principal
facilities:
<TABLE>
<CAPTION>
SQUARE NATURE OF
PRIMARY USE LOCATION FOOTAGE OCCUPANCY
- ----------- -------------- ------- ---------
<S> <C> <C> <C>
Corporate office.............................. Phoenix, AZ 96,000 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
</TABLE>
- ---------------
(1) This facility is owned by Missouri Falls Partners, an affiliate of The
Carmel Trust, a trust governed under the laws of Canada ("Carmel"). Carmel
is an affiliate of the Company and a member of the Carmel Group.
At January 31, 1999, all but six of our stores were leased. The expiration
dates (including renewal options) of the store leases are summarized as follows:
<TABLE>
<CAPTION>
1998
YEARS STORES(1)
----- ---------
<S> <C>
1999-2000.................................................. 9
2001-2005.................................................. 56
2006-2010.................................................. 72
2011-2020.................................................. 307
2021-2030.................................................. 322
2031-thereafter............................................ 35
</TABLE>
- ---------------
(1) Of these stores, 1 is owned by affiliates of Carmel.
Additional information regarding our facilities appears in Item I. Business
under the captions "Store Operations," "Store Formats" and "Warehouse and
Distribution."
ITEM 3. LEGAL PROCEEDINGS
We were served with a lawsuit that was filed in the Superior Court in San
Diego, California on May 4, 1998. The case is brought by two former store
managers and a former assistant manager. It purports to be a class action for
all present and former California store managers and senior assistant managers
and seeks overtime pay for a period beginning in May 1995 as well as injunctive
relief requiring overtime pay in the future. This case is in the early stages of
discovery. We were recently served with two other lawsuits purporting to be
class actions filed in California state courts in Orange and Fresno Counties by
thirteen other former and current employees. These lawsuits include similar
claims to the San Diego lawsuit, except that they also
11
<PAGE> 13
include claims for unfair business practices which seek overtime from October
1994. The Orange County lawsuit initially included a claim for punitive damages
based on an unlawful conversion theory. On March 9, 1999, the Orange County
court dismissed the conversion theory and claim for punitive damages but gave
the plaintiff 30 days to refile an amended claim. These plaintiffs have since
filed an amended complaint which also includes a claim for conversion and asks
for punitive damages. We have again requested the court to eliminate these items
from the case. The three cases have recently been "coordinated" before one judge
in San Diego County who will be selected shortly. If these cases are permitted
by the courts to proceed as a class action and are decided against us, our
aggregate potential exposure could be material to our results of operations for
the year in which the cases are ultimately decided. We do not believe, however,
that such an adverse outcome, if it were to happen, would materially affect our
financial position or our operations in subsequent periods. Although at this
early stage in the litigation it is difficult to predict their outcomes with any
certainty, we believe that we have meritorious defenses to all of these cases
and intend to defend them vigorously.
We currently and from time to time are involved in other litigation
incidental to the conduct of our business. The damages claimed against us in
some of these litigations are substantial. Although the amount of liability that
may result from these matters cannot be ascertained, we do not currently believe
that, in the aggregate, they will result in liabilities material to our
consolidated financial condition, results of operations or cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our stockholders during the fourth
quarter of fiscal 1998.
12
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock has been listed on the New York Stock Exchange under the
symbol CAO since March 12, 1998. As of April 13, 1999, there were 27,784,834
shares of our common stock outstanding. As of April 13, 1999, there were
approximately 65 record holders of our common stock.
The following table sets forth, for the periods indicated, the high and low
bid prices for our common stock as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
----------------
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1998:
First Quarter (from March 12, 1998).............. $27.81 $22.00
Second Quarter................................... 28.50 23.13
Third Quarter.................................... 27.50 19.44
Fourth Quarter................................... 34.63 21.75
</TABLE>
We have not paid any dividends on our common stock during the last two
fiscal years. We currently do not intend to pay any dividends on our common
stock.
We are a holding company with no business operations of our own. We
therefore depend upon payments, dividends and distributions from CSK Auto, Inc.,
our wholly owned subsidiary, for funds to pay dividends to our stockholders. CSK
Auto, Inc. currently intends to retain its earnings to fund its working capital,
debt repayment and capital expenditure needs and for other general corporate
purposes. CSK Auto, Inc. has no current intention of paying dividends or making
other distributions to us in excess of amounts necessary to pay our operating
expenses and taxes. CSK Auto, Inc.'s senior credit facility and the indenture
governing its 11% senior subordinated notes contain restrictions on CSK Auto,
Inc.'s ability to pay dividends or make payments or other distributions to us.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated statement of
operations, balance sheet and operating data. The selected statement of
operations and balance sheet data are derived from our consolidated financial
statements, which have been audited by PricewaterhouseCoopers LLP, independent
accountants. You should read the data presented below together with our
consolidated financial statements and related notes, the other financial
information contained herein, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
13
<PAGE> 15
<TABLE>
<CAPTION>
FISCAL YEAR(1)
----------------------------------------------------------------
1998(2) 1997(3) 1996(4) 1995(5) 1994(6)
------------ ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SELECTED STORE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales.............................. $1,004,385 $845,815 $793,092 $718,352 $688,135
Cost of sales.......................... 531,073 468,171 463,374 433,817 410,358
---------- -------- -------- -------- --------
Gross profit........................... 473,312 377,644 329,718 284,535 277,777
Other costs and expenses:
Operating and administrative......... 391,863 327,838 312,908 284,697 258,600
Transition and integration
expenses.......................... 3,075 3,407 -- -- --
Stock-based compensation............. -- 909 -- -- --
Write-off of unamortized management
fee............................... 3,643 -- -- -- --
1996 Recapitalization charge......... -- -- 20,174 -- --
Secondary stock offering costs....... 770 -- -- -- --
---------- -------- -------- -------- --------
Operating profit (loss)................ 73,961 45,490 (3,364) (162) 19,177
Other 1996 Recapitalization charges.... -- 1,009 12,463 -- --
Interest expense, net.................. 30,730 40,680 20,691 14,379 10,343
---------- -------- -------- -------- --------
Income (loss) before taxes and
extraordinary gain (loss)............ 43,231 3,801 (36,518) (14,541) 8,834
Income tax expense (benefit)........... 15,746 1,557 (11,859) (5,447) 68
---------- -------- -------- -------- --------
Income (loss) before extraordinary gain
(loss)............................... 27,485 2,224 (24,659) (9,094) 8,766
Extraordinary gain (loss).............. (6,767) (3,015) -- -- 97,186
---------- -------- -------- -------- --------
Net income (loss)...................... $ 20,718 $ (771) $(24,659) $ (9,094) $105,952
========== ======== ======== ======== ========
Diluted earnings (loss) per share...... $ 0.75 $ (0.04) $ (2.28) $ (1.04) $ 12.15
========== ======== ======== ======== ========
Shares used for computation............ 27,640 18,012 10,819 8,724 8,724
========== ======== ======== ======== ========
OTHER DATA
EBITDA(7)............................ $ 103,861 $ 70,173 $ 50,544 $ 16,099 $ 32,282
EBITDAR(7)........................... 175,549 124,695 98,450 61,453 70,964
Capital expenditures................. 37,846 20,132 6,317 11,640 14,597
Commercial sales(8).................. 155,845 115,378 89,551 60,840 32,630
Net cash provided by (used in)
operating activities.............. 3,403 (62,703) (33,836) 1,354 15,120
Net cash used in investing
activities........................ (37,524) (56,727) (15,216) (7,888) (18,983)
Net cash provided by (used in)
financing activities.............. 36,759 119,059 49,911 8,028 (5,383)
SELECTED STORE DATA
Number of stores (end of period)..... 807 718 580 566 544
Percentage increase in comparable
store net sales(9)................ 2% 4% 6% 2% 5%
BALANCE SHEET DATA (END OF PERIOD)
Net working capital.................. $ 306,879 $235,651 $121,157 $ 81,048 $ 77,627
Total assets......................... 636,676 563,251 443,986 391,319 350,830
Total debt (including current
maturities)....................... 333,293 439,962 335,680 122,003 105,601
Stockholders' equity (deficit)....... 105,389 (75,055) (102,263) 59,997 69,091
</TABLE>
See accompanying notes on pages 15 and 16.
14
<PAGE> 16
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Our fiscal year consists of 52 or 53 weeks, ends on the Sunday nearest to
January 31 and is named for the calendar year just ended. All fiscal years
presented had 52 weeks except for fiscal 1996, which had 53 weeks.
(2) Results of operations in fiscal 1998 include: (1) an extraordinary loss of
$6.8 million, which consisted primarily of the premiums paid in connection
with the retirement of outstanding debt with the proceeds of our initial
public offering and the write-off of a portion of deferred debt issuance
costs; (2) $3.1 million of transition and integration expenses associated
with the Trak West Acquisition; (3) the write-off of a $3.6 million prepaid
management fee; and (4) $0.8 million of secondary offering costs. Excluding
these non-recurring items, net of related income tax benefit thereon, net
income for the fiscal year was $32.2 million or $1.13 per diluted share
(based on 28.6 million shares outstanding).
(3) In December 1997, we acquired 82 Trak West stores which have been included
in results of operations from the date of acquisition. Results of operations
in fiscal 1997 include: (1) an extraordinary loss of $3.0 million to reflect
the write-off of certain deferred financing costs associated with the early
extinguishment of our previous senior credit facility; (2) $3.4 million of
transition and integration expenses associated with the Trak West
Acquisition; and (3) $1.0 million of other expenses related to our
recapitalization in October 1996.
(4) Results of operations in fiscal 1996 include certain non-recurring charges
which were incurred when we consummated our recapitalization in October
1996, including the following: (1) amounts paid to members of management
pursuant to then existing equity participation agreements of $19.9 million
($20.2 million including a provision for estimated payroll taxes thereon);
and (2) expenses incurred in connection with the 1996 Recapitalization of
$12.5 million. Our fiscal 1996 results also include a charge of $12.9
million to reflect the store closing costs of 91 specific store sites. This
charge is included in operating and administrative expenses.
(5) Results of operations in fiscal 1995 include pre-opening expenses of $1.6
million associated with the opening of our new distribution center in
Phoenix, Arizona. Our fiscal 1995 operating and administrative expenses also
include $5.3 million of software development costs associated with the new
store-level information systems we installed during fiscal 1995. In
addition, we believe that our operations and operating results were
adversely impacted during fiscal 1995 as a result of the start-up costs
associated with the implementation of many new initiatives.
(6) Net income in fiscal 1994 includes an extraordinary gain of $97.2 million
resulting from cancellation of a portion of our long-term debt.
(7) EBITDA represents income before net interest expense, provision for income
taxes, depreciation and amortization expense, other non-cash charges,
extraordinary items and non-recurring charges. While EBITDA is not intended
to represent cash flow from operations as defined by GAAP (and should not be
considered as an indicator of operating performance or an alternative to
cash flow (as measured by GAAP)), it is included herein because we believe
it is a meaningful measure which provides additional information with
respect to our ability to meet our future debt service, capital expenditure
and working capital requirements. EBITDA has been calculated as described
above in accordance with the terms of the indenture under which our 11%
Senior Subordinated Notes were issued and may differ in method of
calculation from similarly titled measures used by other companies.
15
<PAGE> 17
The computation of EBITDA for each of the respective periods shown is as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income (loss) before income taxes
and extraordinary gain (loss).... $ 43,231 $ 3,801 $(36,518) $(14,541) $ 8,834
Add back:
Interest expense, net............ 30,730 40,680 20,691 14,379 10,343
Depreciation and amortization
expense....................... 22,412 20,367 19,225 16,261 13,105
Non-recurring 1996
Recapitalization expenses..... -- 1,009 32,637 -- --
Other non-recurring and non-cash
charges....................... 7,488 4,316 14,509 -- --
-------- ------- -------- -------- -------
Total.................... $103,861 $70,173 $ 50,544 $ 16,099 $32,282
======== ======= ======== ======== =======
</TABLE>
EBITDAR represents EBITDA plus operating lease rental expense. Because the
proportion of stores leased versus owned varies among industry competitors,
we believe that EBITDAR permits a meaningful comparison of operating
performance among industry competitors. We lease substantially all of our
stores.
(8) Represents sales to commercial accounts, including sales from stores without
commercial sales centers.
(9) Comparable store net sales data is calculated based on the change in net
sales commencing after the time a new store has been open twelve months.
Therefore, sales for 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Our fiscal year ends on the Sunday nearest to January 31 and is named for
the calendar year just ended. Occasionally this results in a fiscal year which
is 53 weeks long. When we refer to a particular fiscal year, we mean the
following:
- Fiscal 1998 means the 52 weeks ended January 31, 1999;
- Fiscal 1997 means the 52 weeks ended February 1, 1998; and
- Fiscal 1996 means the 53 weeks ended February 2, 1997.
GENERAL
CSK Auto Corporation is the largest retailer of automotive parts and
accessories in the Western United States and one of the largest retailers of
these products in the United States based, in each case, on our number of
stores. As of January 31, 1999, we operated 807 stores as one fully integrated
company under three brand names:
- Checker Auto Parts, founded in 1969 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.
16
<PAGE> 18
Over the past several years, we have implemented a variety of initiatives
which have enabled us to significantly increase our productivity and the level
and quality of service we provide to customers. These initiatives include:
- Expanding our product selection and priority parts operation;
- Converting our warehouse and distribution system to a technologically
advanced, fully-integrated system;
- Installing sophisticated store-level information systems;
- Accelerating our store growth strategy; and
- Expanding our commercial sales program.
Largely as a result of the success of these programs, our profitability has
improved. We believe that these initiatives have provided the foundation for
continued and profitable growth.
The discussion which follows includes several references to charges and
effects relating to the following significant transactions which occurred during
the period covered:
- In October 1996, INVESTCORP S.A. and certain other investors (whom we
refer to as the "Investcorp Group") purchased a 51% equity interest in
our company in a series of related transactions resulting in a new
capitalization structure for our company. We refer to these transactions
as the "1996 Recapitalization."
- In December 1997, we acquired 82 stores located in the Los Angeles market
from Trak Auto Corporation for approximately $34.5 million. We refer to
this transaction as the "Trak West Acquisition."
- In March 1998, we completed the initial public offering of our common
stock and used the net proceeds to repay outstanding debt. We refer to
this transaction as our "IPO."
- In December 1998, certain of our stockholders completed a secondary
offering of our common stock. We received no proceeds from this offering
and incurred an aggregate of $770,000 in legal, accounting, printing and
other costs. We refer to this transaction as the "Secondary Offering."
17
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth our statement of operations data expressed
as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 52.9 55.4 58.4
----- ----- -----
Gross profit................................................ 47.1 44.6 41.6
Operating and administrative expenses....................... 39.0 38.8 39.5
Transition and integration expenses......................... 0.3 0.4 --
Stock-based compensation.................................... -- 0.1 --
Secondary offering costs.................................... 0.1 -- --
Write-off of unamortized management fee..................... 0.3 -- --
1996 Recapitalization charge -- equity participation
agreements................................................ -- -- 2.5
----- ----- -----
Operating profit (loss)..................................... 7.4 5.3 (0.4)
Other 1996 Recapitalization charges......................... -- 0.1 1.6
Interest expense, net....................................... 3.1 4.8 2.6
Income tax expense (benefit)................................ 1.6 0.1 (1.5)
----- ----- -----
Income (loss) before extraordinary loss..................... 2.7 0.3 (3.1)
Extraordinary loss.......................................... (0.6) (0.4) --
----- ----- -----
Net income (loss)........................................... 2.1% (0.1)% (3.1)%
===== ===== =====
</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 our 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.
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for fiscal 1998 increased $158.6 million, or 18.7% over net sales
for fiscal 1997, primarily reflecting an increase in the number of stores
operated. Our comparable store sales increased $17.5 million, or 2%. Our new
stores contributed $138.9 million to the increase in net sales for the fiscal
year, including $84.3 million in net sales contributed by the former Trak West
stores acquired on December 8, 1997. During fiscal 1998, we opened 94 stores,
relocated 31 stores, expanded 5 stores, acquired 2 stores and closed 7 stores in
addition to those closed due to relocation. As a result, we operated 807 stores
at the end of fiscal 1998 compared to 718 stores at the end of fiscal 1997.
Gross profit for fiscal 1998 was $473.3 million, or 47.1% of net sales,
compared to $377.6 million, or 44.6% of net sales for fiscal 1997. The increase
in gross profit percentage primarily resulted from our ability to obtain
generally better pricing and more favorable terms and support from our vendors
due to increased purchase volume, improved financial performance and stronger
capitalization.
Operating and administrative expenses increased by $64.0 million to $391.9
million, or 39.0% of net sales, for fiscal 1998 from $327.8 million, or 38.8% of
net sales for fiscal 1997. The increase is primarily the result of the operating
costs of new stores that are in the early stages of maturation and the operating
costs of the Trak West stores, which exceed our company-wide average as a
percent of sales.
18
<PAGE> 20
Operating profit increased to $74.0 million, or 7.4% of net sales, for
fiscal 1998, compared to $45.5 million, or 5.3% of net sales, for fiscal 1997.
During the first quarter of 1998, we incurred $3.1 million of expenses
associated with the integration of the Trak West stores and a $3.6 million
non-recurring charge associated with the termination of a management agreement
as a result of our IPO. In the fourth quarter of fiscal 1998, we incurred $0.8
million of costs in connection with the Secondary Offering. Operating profit for
fiscal 1997 was affected by $3.4 million of expenses associated with the
integration of the Trak West stores and by $0.9 million of stock-based
compensation expense.
Interest expense for fiscal 1998 decreased to $30.7 million from $40.7
million for fiscal 1997. The expense decreased primarily as the result of the
early retirement of approximately $147.6 million of outstanding debt with the
proceeds of our IPO. The retirement of this debt also produced an extraordinary
loss of $6.8 million, net of tax, which consisted primarily of prepayment
premiums paid in connection with the redemption of debt and the write-off of a
portion of deferred debt issuance costs.
Income tax expense for fiscal 1998 was $15.7 million compared to income tax
expense of $1.6 million in fiscal 1997.
As a result of the factors cited above, net income increased in fiscal 1998
to $20.7 million, ($0.75 per diluted common share), from a net loss for fiscal
1997 of $0.8 million, or $0.04 per diluted share. Additionally, earnings before
interest, taxes, depreciation and amortization ("EBITDA") increased by $33.7
million to $103.9 million in fiscal 1998, compared to $70.2 million in fiscal
1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for fiscal 1997 increased $52.7 million, or 6.7%, over net sales
for fiscal 1996. Comparable store sales increased $29.9 million, or 4%, and new
stores contributed $22.2 million to the increase in net sales for the fiscal
year. Included in the $22.2 million of new store sales is $10.6 million in net
sales contributed by the former Trak West stores acquired on December 8, 1997.
During fiscal 1997, we opened 65 new stores, relocated 36 stores, expanded 3
stores, sold 4 stores, closed 5 stores in addition to those closed due to
relocations and acquired the 82 Trak West stores. At February 1, 1998, we had
718 stores in operation compared to 580 stores at the end of fiscal 1996.
Gross profit for fiscal 1997 was $377.6 million, or 44.6% of net sales,
compared to $329.7 million, or 41.6% of net sales, for fiscal 1996. The increase
in gross profit percentage resulted from our ability to obtain generally better
pricing and more favorable terms from our vendors as a result of our increased
purchase volume, improved operating results and financial condition. In
addition, we realized an increase in sales of automotive replacement parts which
produce a higher gross profit percentage than other product categories. Gross
profit percentage was also favorably affected by efficiencies achieved by our
warehousing and distribution systems.
Operating and administrative expenses increased by $14.9 million to $327.8
million, or 38.8% of net sales, for fiscal 1997 from $312.9 million, or 39.5% of
net sales, for fiscal 1996. The increase in this expense is primarily the result
of the incremental operating costs of new stores that are in the early stages of
maturation. Also, we incurred approximately $0.9 million of stock-based
compensation expense in fiscal 1997 as the result of the sale of stock to
certain members of management at a discount to its fair market value.
Operating profit increased to $45.5 million, or 5.3% of net sales, for
fiscal 1997, compared to an operating loss of $3.4 million, or 0.4% of net
sales, for fiscal 1996. Significant items that affect the comparability of these
operating results include: (1) $1.6 million of store closing costs in fiscal
1997 compared to $14.9 million of store closing costs in fiscal 1996; (2) $3.4
million of transition and integration expense in fiscal 1997 associated with the
Trak West Acquisition compared with no such expense occurring in fiscal 1996;
and (3) $20.2 million of charges in fiscal 1996 in connection with certain
equity participation agreements which became payable as a result of the 1996
Recapitalization compared with no such charges occurring in fiscal 1997. The
1996 store closing costs include a charge of $12.9 million to reflect the store
closing costs of 91 specific store sites that were included in an update of our
strategic plan for store relocation and expansion.
19
<PAGE> 21
Interest expense for fiscal 1997 totaled $40.7 million compared to $20.7
million for fiscal 1996. The increase is the result of the issuance of new
subordinated debt and higher average bank borrowings.
Income tax expense totaled $1.6 million in fiscal 1997, an effective tax
rate of 41%, compared to an income tax benefit of $11.9 million for fiscal 1996.
We incurred an extraordinary loss of $3.0 million, net of income taxes, in
fiscal 1997 as a result of the write-off of the deferred financing costs
associated with the amendment and restatement of our Senior Credit Facility.
As a result of the factors cited above, net loss decreased to $0.8 million
for fiscal 1997, compared to a net loss of $24.7 million for fiscal 1996.
Additionally, EBITDA increased by $19.7 million to $70.2 million for fiscal 1997
compared to $50.5 million for fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Our primary cash requirements include working capital (primarily
inventory), debt service obligations and capital expenditures. We intend to
finance our cash requirements with cash flow from operations, funds from our
leasing facility and borrowings under our revolving credit facility. At January
31, 1999, we had net working capital of approximately $307 million and total
liquidity (cash plus availability under our revolving credit facility) of
approximately $53 million. We also have access to an off-balance sheet operating
lease facility that is used to finance new store construction. The facility
gives us up to $125 million of funding to provide for the acquisition and
development of 100 to 125 new stores over the period of February 1, 1998 through
May 31, 1999. As of January 31, 1999, approximately $35.8 million of this $125
million leasing facility had been committed. Our revolving credit facility
provides for borrowings of up to $125 million, of which $45.4 million of unused
capacity was available at January 31, 1999. We believe that cash flow from
operations combined with the availability of funds under the leasing facility
and the revolving credit facility will be sufficient to support our operations
and liquidity requirements for the foreseeable future.
We opened 130 new, relocated or expanded stores in fiscal 1998 and 104 new,
relocated or expanded stores in fiscal 1997. We expect to open, relocate or
expand approximately 150 stores in fiscal 1999. We anticipate that the majority
of these new, relocated or expanded stores will be financed by our lease
facility under arrangements structured as operating leases that require no net
capital expenditures except for fixtures and store equipment. For the remainder
of our planned new, relocated or expanded stores, we expect to spend
approximately $125,000 per store for leasehold improvements. In addition to
capital expenditures, each new store will require an estimated investment in
working capital, principally for inventories, of approximately $300,000. New
stores generally become profitable during the first full year of operations.
In addition to capital expenditures for new stores, we expect to spend
approximately $6.5 million over the next year for information systems hardware
and software (approximately $2.8 million of which is related to the "Year 2000"
issue discussed below). Our debt service requirements in 1999 include scheduled
principle reductions of approximately $9.6 million.
In fiscal 1998, net cash provided by operating activities was $3.4 million
compared to $62.7 million of cash used in operating activities during fiscal
1997. Net cash provided by operating activities has increased as a result of the
cash flow generated by the increasing profitability of our operations, reduced
by a significant investment in inventories.
Net cash used in investing activities totaled $37.5 million in fiscal 1998,
compared to $56.7 million in fiscal 1997. Significant items that affect the
comparability of investing activities include: (1) $37.8 million used for
capital expenditures in fiscal 1998 as a result of our new store development
program as compared to $20.1 million in fiscal 1997; and (2) $34.5 million in
cash used in the Trak West Acquisition during fiscal 1997.
20
<PAGE> 22
Net cash provided by financing activities totaled $36.8 million in fiscal
1998 compared to $119.1 million in fiscal 1997. In 1998, net cash provided by
financing activities consisted of $126.0 million of revolving credit facility
borrowings, payments of debt of $87.1 million, $8.6 million of payments on
capital lease obligations, $0.4 million in proceeds from stock option exercises
and receipt of $0.2 million of stockholder receivables. In addition, we received
gross proceeds of $172.5 million in connection with our IPO, which were applied
as follows: (1) $13.9 million to pay underwriters' discounts and other
transaction costs; (2) $50.0 million to retire all outstanding 12% Subordinated
Notes; (3) $43.8 million to retire certain of the 11% Senior Subordinated Notes;
(4) $53.8 million to pay certain outstanding balances under the Senior Credit
Facility; (5) $4.9 million to pay premiums in connection with the retirement of
certain of the aforementioned debt instruments and the balance to pay accrued
interest and for general corporate purposes. In 1997, we borrowed $325.6 million
under the Senior Credit Facility, made payments of debt of $223.5 million, made
payments of capital lease obligations of $7.5 million, received $21.7 million in
proceeds from the private placement of common stock, received $6.0 million of
stockholder receivables and paid $3.2 million in connection with other financing
activities.
YEAR 2000 CONVERSION
Historically, certain computerized systems have used two digits rather than
four to define the applicable year. Computer equipment and software and devices
with imbedded technology that are time-sensitive may recognize a date using "00"
as the year 1900 rather than the year 2000, resulting in system failures or
miscalculations. This problem is generally referred to as "the Year 2000 issue."
During fiscal 1997, we began a comprehensive review of our systems and
applications for Year 2000 compliance. We also engaged an independent advisor to
evaluate and assist us with our Year 2000 program. To date, we have
substantially completed the identification and assessment phases of our Year
2000 conversion. We have included both information technology, such as purchased
software and point-of-sale computer systems, and non-information technology
equipment, such as warehouse conveyor systems, in our evaluations. In addition,
we have identified our key third-party business partners and we are coordinating
with them to address potential Year 2000 issues. These issues include data
exchange with us as well as their shipping and warehousing processes.
Although we anticipate minimal business disruption will occur in our
systems as a result of the Year 2000 issue, possible consequences include a loss
of communications links with certain store locations, and the inability to
process transactions, send purchase orders, or engage in similar normal business
activities. We presently believe that with modifications to existing software
and conversions to new software, the risk of our Year 2000 conversion can be
mitigated. However, if we do not make the necessary modifications and
conversions, or do not complete them in a timely manner, it could have a
material adverse effect on our operations.
We currently anticipate that our Year 2000 identification, assessment,
remediation and testing efforts, will be completed by July 31, 1999, although we
will continue to run system tests throughout the remainder of the year. As of
January 31, 1999, we have completed approximately 76% of our Year 2000
initiatives. To date, we have incurred and expensed approximately $0.8 million
related to the assessment of and preliminary efforts in connection with our Year
2000 conversion project. To date, we have also capitalized approximately $3.2
million in connection with the replacement of certain hardware and software
applications.
We estimate the total remaining cost of our Year 2000 conversion to be $4.9
million, which is being funded with lease financing and operating cash flows. Of
the total project cost, we attribute approximately $2.8 million to the purchase
of new hardware and software which will be capitalized. We will expense the
remaining $2.1 million as incurred over the next fiscal year.
We have begun, but not yet completed, a comprehensive analysis of the
operational problems and costs (including loss of revenues) that would be
reasonably likely to result from our failure and the failure of certain third
parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. We are currently developing contingency plans which should be
finalized by June 30, 1999. Elements of our
21
<PAGE> 23
contingency plans may include: switching vendors, back-up systems or manual
processes, and the stockpiling of certain products prior to the Year 2000.
The costs of our Year 2000 conversion and the date on which we plan to
complete the project are based upon our management's best estimates, which were
derived utilizing numerous assumptions of future events. We cannot guarantee
that we will achieve these estimates. Specific factors that could cause material
differences between our actual results and our estimates include: (1) the
availability and cost of personnel trained in this area; (2) the success of
third parties in their Year 2000 conversion plans; and (3) the ability to locate
and correct all relevant computer codes and similar uncertainties.
QUARTERLY RESULTS AND SEASONALITY
Our business is somewhat seasonal in nature, with the highest sales
occurring in the summer months of June through August (overlapping our second
and third fiscal quarters). Our business is, in addition, affected by weather
conditions. While unusually severe or inclement weather tends to reduce sales as
our customers tend to defer elective maintenance during such periods, extremely
hot and cold temperatures tend to enhance sales by causing auto parts to fail
and sales of seasonal products to increase.
The following table sets forth certain quarterly unaudited operating data
for fiscal 1998 and 1997. 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 our
consolidated financial statements and related notes and the other financial
information included herein.
<TABLE>
<CAPTION>
FISCAL 1998
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales.......................................... $238,423 $254,701 $263,142 $248,119
Gross profit....................................... 107,717 117,661 127,031 120,903
Transition and integration expenses................ 3,075 -- -- --
Write-off of unamortized management fee............ 3,643 -- -- --
Secondary stock offering costs..................... -- -- -- 770
Operating profit(1)................................ 7,976 22,239 23,510 20,236
Extraordinary loss, net of $4,236 of income (6,767) -- -- --
taxes............................................
Net income (loss)(2)............................... (7,519) 9,342 10,527 8,368
Basic earnings (loss) per share(3)................. (0.32) 0.34 0.38 0.30
Diluted earnings (loss) per share(3)............... (0.32) 0.33 0.37 0.29
EBITDA............................................. $ 20,443 $ 27,877 $ 28,979 $ 26,562
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
FISCAL 1997
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales........................................... $201,613 $217,944 $216,908 $209,350
Gross profit........................................ 84,112 93,199 100,237 100,096
Transition and integration expenses................. -- -- -- 3,407
Operating profit(4)................................. 7,017 12,099 17,108 9,266
Extraordinary loss, net of $2,091 of income taxes... -- -- -- (3,015)
Net income (loss)(5)................................ (1,649) 1,267 4,320 (4,709)
Basic earnings (loss) per share(3).................. (0.10) 0.07 0.25 (0.26)
Diluted earnings (loss) per share(3)................ (0.10) 0.07 0.25 (0.25)
EBITDA.............................................. $ 11,759 $ 17,461 $ 22,454 $ 18,499
</TABLE>
- ---------------
(1) Operating profit in the first quarter of fiscal 1998 was negatively affected
by non-recurring charges of $3.1 million related to the transition and
integration of the 82 Trak West stores (see note 3 to our consolidated
financial statements) and the $3.6 million write-off of the remaining
unamortized balance of a prepaid management consulting and advisory services
agreement that terminated by its terms upon consummation of our IPO.
Operating profit in the fourth quarter of fiscal 1998 was negatively
affected by non-recurring charges of $.8 million related to the Secondary
Offering.
(2) Net income in the first quarter of fiscal 1998 was negatively affected by a
$6.8 million extraordinary loss, net of a $4.2 million benefit for income
taxes, which consisted of prepayment premiums paid in connection with
redemption of debt and the write-off of a portion of deferred debt issuance
costs, as well as by the charges discussed in note (1) above, net of income
taxes.
(3) The sum of the quarterly earnings (loss) per share amounts within a fiscal
year differ from the total earnings (loss) per share for the fiscal year due
to the impact of differing weighted average share outstanding calculations.
(4) Operating profit in the fourth quarter of fiscal 1997 was negatively
affected by $3.4 million of transition and integration expenses related to
the acquisition of 82 former Trak West stores and by $0.9 million of
stock-based compensation.
(5) Net income in the fourth quarter of fiscal 1997 was negatively affected by
an extraordinary loss of $3.0 million related to the write-off of the
deferred financing costs associated with the early retirement of debt as
well as by the charges discussed in note (4) above, net of income taxes.
INFLATION
We do not believe our operations have been materially affected by
inflation. We believe that we 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes new
standards for the way that public companies report selected information about
operating segments in interim and annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of SFAS No. 131 had no effect
on our financial statements since we operate in a single segment.
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosures
about Pensions and Other Postretirement Benefits." This statement was adopted
during fiscal 1998 and only required certain disclosures in our financial
statements. The adoption did not have any effect on our financial position or
results of operations.
23
<PAGE> 25
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-1, "Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use." The SOP defines the characteristics of internal-use computer
software, criteria for capitalization and financial statement disclosure
requirements. We will adopt SOP 98-1 in the first quarter of fiscal 1999 and do
not expect that such adoption will have a material effect on our financial
position or results of operations.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 98-5, "Reporting on the
Cost of Start-up Activities." The SOP broadly defines start-up activities as
those one-time activities related to opening a new facility, introducing a new
product or service, conducting business in a new territory, or commencing some
new operation. The SOP requires that the costs of start-up activities be
expensed as incurred. Our current accounting policy with respect to the cost of
start-up activities (store preopening expenses) is to defer such costs for the
approximately three month period of time that it takes to develop a new store
facility and to expense such costs during the month that the new store opens. We
will adopt SOP 98-5 in the first quarter of fiscal 1999, which will require us
to change our current accounting policy to expense start-up costs as incurred.
Upon adoption, we will expense approximately $1.2 million of preopening expenses
deferred as of January 31, 1999. Such expense will be reflected in the
consolidated statement of operations as the cumulative effect of a change in
accounting principle.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial market risks relating to our operations result primarily from
changes in interest rates. Interest earned on our cash equivalents as well as
interest paid on our Senior Credit Facility is variable rate and, accordingly,
sensitive to changes in interest rates. We believe the potential exposure to
interest rate risk is not material to our financial position or the results of
operations.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
24
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
CSK Auto Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows present fairly, in all material respects, the financial position of CSK
Auto Corporation and subsidiary (the "Company") at January 31, 1999 and February
1, 1998, and the results of their operations and their cash flows for each of
the three years in the period ended January 31, 1999, 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.
PricewaterhouseCoopers LLP
Phoenix, Arizona
April 2, 1999
25
<PAGE> 27
CSK AUTO CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................................... $ 1,004,385 $ 845,815 $ 793,092
Cost of sales....................................... 531,073 468,171 463,374
----------- ----------- -----------
Gross profit........................................ 473,312 377,644 329,718
Other costs and expenses:
Operating and administrative...................... 391,863 327,838 312,908
Transition and integration expenses............... 3,075 3,407 --
Stock-based compensation.......................... -- 909 --
Write-off of unamortized management fee........... 3,643 -- --
1996 Recapitalization charge -- equity
participation agreements....................... -- -- 20,174
Secondary stock offering costs.................... 770 -- --
----------- ----------- -----------
Operating profit (loss)............................. 73,961 45,490 (3,364)
Other 1996 Recapitalization expenses................ -- 1,009 12,463
Interest expense, net............................... 30,730 40,680 20,691
----------- ----------- -----------
Income (loss) before income taxes and extraordinary
loss.............................................. 43,231 3,801 (36,518)
Income tax expense (benefit)........................ 15,746 1,557 (11,859)
----------- ----------- -----------
Income (loss) before extraordinary loss............. 27,485 2,244 (24,659)
Extraordinary loss, net of $4,236 (fiscal 1998) and
$2,091 (fiscal 1997) of income taxes.............. (6,767) (3,015) --
----------- ----------- -----------
Net income (loss)................................... $ 20,718 $ (771) $ (24,659)
=========== =========== ===========
Basic earnings (loss) per share:
Income (loss) before extraordinary loss........... $ 1.03 $ 0.13 $ (2.28)
Extraordinary loss, net of income taxes........... (0.25) (0.17) --
----------- ----------- -----------
Net income (loss)................................. $ 0.78 $ (0.04) $ (2.28)
=========== =========== ===========
Shares used in computing per share amounts........ 26,722,322 17,400,214 10,818,913
=========== =========== ===========
Diluted earnings (loss) per share:
Income (loss) before extraordinary loss........... $ 0.99 $ 0.12 $ (2.28)
Extraordinary loss, net of income taxes........... (0.24) (0.16) --
----------- ----------- -----------
Net income (loss)................................. $ 0.75 $ (0.04) $ (2.28)
=========== =========== ===========
Shares used in computing per share amounts........ 27,640,099 18,011,666 10,818,913
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE> 28
CSK AUTO CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 7,490 $ 4,852
Receivables, net of allowances of $1,703 and $2,403,
respectively.............................................. 58,867 37,566
Inventories................................................. 414,422 367,366
Assets held for sale........................................ 5,018 2,418
Prepaid expenses and other current assets................... 18,295 14,143
--------- ---------
Total current assets.............................. 504,092 426,345
--------- ---------
Property and equipment, net................................. 105,037 85,940
Leasehold interests, net.................................... 9,643 10,934
Deferred income taxes....................................... 10,695 22,021
Other assets, net........................................... 7,209 18,011
--------- ---------
Total assets...................................... $ 636,676 $ 563,251
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable............................................ $ 122,304 $ 114,270
Accrued payroll and related expenses........................ 25,962 20,869
Accrued expenses and other current liabilities.............. 35,312 40,818
Due to affiliates........................................... -- 1,000
Current maturities of amounts due under Senior Credit
Facility.................................................. 840 1,000
Current maturities of capital lease obligations............. 8,749 8,671
Deferred income taxes....................................... 4,046 4,066
--------- ---------
Total current liabilities......................... 197,213 190,694
--------- ---------
Amounts due under Senior Credit Facility.................... 224,320 239,050
Obligations under 11% Senior Subordinated Notes............. 81,250 125,000
Obligations under 12% Subordinated Notes.................... -- 50,000
Obligations under capital leases............................ 18,134 16,241
Other....................................................... 10,370 17,321
--------- ---------
Total non-current liabilities..................... 334,074 447,612
--------- ---------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $0.01 par value, 50,000,000 shares
authorized (fiscal 1998), 41,666,752 shares authorized
(fiscal 1997); 27,768,832 and 19,113,388 shares issued
and outstanding at January 31, 1999 and February 1,
1998, respectively..................................... 278 191
Additional paid-in capital.................................. 289,820 130,513
Stockholder receivable...................................... (1,018) (1,168)
Deferred compensation....................................... (493) (675)
Accumulated deficit......................................... (183,198) (203,916)
--------- ---------
Total stockholders' equity (deficit).............. 105,389 (75,055)
--------- ---------
Total liabilities and stockholders' equity
(deficit)....................................... $ 636,676 $ 563,251
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE> 29
CSK AUTO CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN STOCKHOLDER DEFERRED ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION DEFICIT (DEFICIT)
---------- ------ ---------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 28, 1996.... 100 $ -- $ 81,680 $ -- $ -- $ (21,683) $ 59,997
Conversion of common stock into
Class A, Class C, Class D, and
Class F stock................. 8,723,550 87 (87) -- -- -- --
Redemption of Class F stock..... (100) -- (81,675) -- -- (156,803) (238,478)
Issuance of Class E stock....... 8,381,450 84 100,793 -- -- -- 100,877
Stockholder receivable.......... -- -- 5,966 (5,966) -- -- --
Net loss........................ -- -- -- -- -- (24,659) (24,659)
---------- ---- -------- ------- ----- --------- ---------
Balances at February 2, 1997.... 17,105,000 171 106,677 (5,966) -- (203,145) (102,263)
Recovery of stockholder
receivable.................... -- -- -- 5,966 -- -- 5,966
Sale of Class B stock........... 180,600 2 2,172 (1,168) -- -- 1,006
Sale of stock -- Trak West
Acquisition................... 1,827,788 18 20,989 -- -- -- 21,007
Deferred compensation........... -- -- 675 -- (675) -- --
Net loss........................ -- -- -- -- -- (771) (771)
---------- ---- -------- ------- ----- --------- ---------
Balances at February 1, 1998.... 19,113,388 191 130,513 (1,168) (675) (203,916) (75,055)
Amortization of deferred
compensation.................. -- -- -- -- 182 -- 182
Recovery of stockholder
receivable.................... -- -- -- 150 -- -- 150
Issuance of common stock in
initial public offering, net
of transaction costs.......... 8,625,000 86 158,537 -- -- -- 158,623
Stock compensation.............. -- -- 220 -- -- -- 220
Exercise of options............. 30,444 1 366 -- -- -- 367
Tax benefit of exercise of
options....................... -- -- 184 -- -- -- 184
Net income...................... -- -- -- -- -- 20,718 20,718
---------- ---- -------- ------- ----- --------- ---------
Balances at January 31, 1999.... 27,768,832 $278 $289,820 $(1,018) $(493) $(183,198) $ 105,389
========== ==== ======== ======= ===== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 30
CSK AUTO CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss)......................................... $ 20,718 $ (771) $ (24,659)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization of property and 20,930 18,078 17,290
equipment.............................................
Amortization of leasehold interests..................... 919 1,176 1,749
Amortization of other deferred charges.................. 563 1,113 186
Amortization of deferred financing costs................ 1,016 2,043 1,504
Tax benefit relating to stock option exercises.......... 184 -- --
Extraordinary loss on early retirement of debt, net of 6,767 3,015 --
income taxes..........................................
Write-off of unamortized deferred charge................ 3,643 -- --
Deferred income taxes................................... 15,542 1,557 (11,859)
Change in operating assets and liabilities, net of
effects of acquisitions:
Receivables........................................... (21,056) (9,055) (3,063)
Inventories........................................... (45,848) (63,830) (19,250)
Prepaid expenses and other current assets............. (200) (4,057) (5,316)
Accounts payable...................................... 7,925 (13,732) (25,707)
Accrued payroll, accrued expenses and other current (947) (1,760) 29,120
liabilities........................................
Other operating activities.............................. (6,753) 3,520 6,169
-------- --------- ---------
Net cash provided by (used in) operating activities..... 3,403 (62,703) (33,836)
-------- --------- ---------
Cash flows used in investing activities:
Capital expenditures...................................... (37,846) (20,132) (6,317)
Expenditures for assets held for sale..................... (19,144) (12,335) (19,023)
Proceeds from sale of property and equipment and assets 21,650 10,966 14,667
held for sale...........................................
Due to affiliate.......................................... (1,000) -- (4,530)
Store acquisitions........................................ (892) (34,504) --
Other investing activities................................ (292) (722) (13)
-------- --------- ---------
Net cash used in investing activities....................... (37,524) (56,727) (15,216)
-------- --------- ---------
Cash flows provided by financing activities:
Borrowings under Senior Credit Facility................... 126,000 325,550 805,242
Payments under Senior Credit Facility..................... (87,065) (223,500) (763,304)
Issuance of common stock in initial public offering,...... 172,482 -- --
Underwriter's discount and other IPO costs................ (13,859) -- --
Premiums paid upon early retirement of debt............... (4,875) -- --
Retirement of 11% Senior Subordinated Notes............... (43,750) -- --
Retirement of 12% Subordinated Notes...................... (50,000) -- --
Payment of Senior Credit Facility with public offering (53,825) -- --
proceeds................................................
Issuance of 11% Senior Subordinated Notes................. -- -- 125,000
Issuance of 12% Subordinated Notes........................ -- -- 50,000
Payments on capital lease obligations..................... (8,634) (7,478) (5,888)
Redemption of Class F stock............................... -- -- (238,468)
Issuance of Class E stock................................. -- -- 100,882
Issuance of Class B stock................................. -- 21,714 --
Recovery of stockholder receivable........................ 150 5,966 --
Note issuance costs....................................... -- -- (18,632)
Exercise of options....................................... 367 -- --
Other financing activities................................ (232) (3,193) (4,921)
-------- --------- ---------
Net cash provided by financing activities............... 36,759 119,059 49,911
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents.... 2,638 (371) 859
Cash and cash equivalents, beginning of period.............. 4,852 5,223 4,364
-------- --------- ---------
Cash and cash equivalents, end of period.................... $ 7,490 $ 4,852 $ 5,223
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE> 31
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CSK Auto Corporation is a holding company. At January 31, 1999, CSK Auto
Corporation had no business activity other than its investment in CSK Auto,
Inc., a wholly-owned subsidiary ("Auto"). On a consolidated basis, CSK Auto
Corporation and subsidiary are referred to herein as "the Company."
CSK Auto, Inc. is a specialty retailer of automotive aftermarket parts and
accessories. At January 31, 1999, the Company operated 807 stores in 13 Western
states as a fully integrated company under three brand names: Checker Auto
Parts, founded in 1969 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.
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CSK Auto
Corporation, Auto and Auto's wholly-owned subsidiaries, Schuck's Distribution
Co. and Kragen Auto Supply Co., for all years presented. In addition, the
accounts of TRK Socal, Inc. (the former Trak West stores) are included in the
accompanying financial statements from December 9, 1997, the date of acquisition
(see Note 3). All intercompany accounts and transactions are eliminated in
consolidation. On April 8, 1998, Schuck's Distribution Co., Kragen Auto Supply
Co. and TRK Socal, Inc. were merged into Auto.
FISCAL YEAR
The Company's fiscal year end is on the Sunday nearest to January 31 of the
following calendar year. The fiscal years ended January 31, 1999 ("fiscal 1998")
and February 1, 1998 ("fiscal 1997") each consisted of 52 weeks, while the
fiscal year ended February 2, 1997 ("fiscal 1996") consisted of 53 weeks.
CASH EQUIVALENTS
Cash equivalents consist primarily of certificates of deposit with
maturities of three months or less when purchased.
RECEIVABLES
Receivables are primarily comprised of amounts due from vendors for rebates
or allowances and from commercial sales customers.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash and cash equivalents and trade
receivables. As of January 31, 1999, the Company had cash and cash equivalents
on deposit with a major financial institution that were in excess of FDIC
insured limits. Historically, the Company has not experienced any loss of its
cash and cash equivalents due to such concentration of credit risk.
The Company does not hold collateral to secure payment of its trade
accounts receivable. However, management performs ongoing credit evaluations of
its customers' financial condition and provides an allowance for estimated
potential losses. Exposure to credit loss is limited to the carrying amount.
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. The
Company recognizes vendor rebates, discounts and allowances based on the terms
of the underlying
30
<PAGE> 32
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreements. Such amounts may be amortized over the life of the applicable
agreements or recognized as inventory is sold. Certain operating and
administrative costs associated with purchasing and handling of inventory are
capitalized in inventories. The amounts of such costs included in inventories as
of January 31, 1999 and February 1, 1998 were approximately $17.9 million and
$15.9 million, respectively. The replacement cost of inventories approximated
$356.7 million and $316.2 million at January 31, 1999 and February 1, 1998,
respectively.
PROPERTY AND EQUIPMENT
Property, equipment and purchased software are recorded at cost.
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 leasehold
improvements and property under capital lease, the base lease term or estimated
useful life, if shorter. Maintenance and repairs are charged to earnings when
incurred.
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 expensed during the
month in which the store is opened. In keeping with the recommendations of
Statement of Position ("SOP") 98-5, "Reporting on the Cost of Start-up
Activities" we will change this policy in fiscal 1999 and expense these costs as
incurred. Upon adoption, we will expense approximately $1.2 million of
preopening expenses deferred as of January 31, 1999. This will be reflected in
the consolidated statement of operations as the cumulative effect of a change in
accounting principle.
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 fiscal years 1998, 1997 and 1996 were approximately
$1.6 million, $1.3 million and $1.5 million, respectively. In keeping with the
recommendations of SOP 98-1 "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use," we will change this policy in fiscal
1999 and begin to capitalize certain internal software development costs and
amortize them over the life of the related software, as provided for in the SOP.
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.
Amortization expense is computed on a straight-line basis over the respective
lease terms. Accumulated amortization totaled $16.2 million at January 31, 1999
and February 1, 1998, respectively.
STORE CLOSING COSTS
The Company provides an allowance for estimated costs and losses to be
incurred in connection with store closures and losses on the disposal of
store-related assets, which is net of anticipated sublease income. Such costs
are recognized when a store is specifically identified, costs can be estimated
and closure is planned to be completed within the next twelve months. See Note
12.
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 expense for
31
<PAGE> 33
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fiscal 1998, 1997 and 1996 totaled approximately $21.9 million, $23.7 million
and $21.8 million, net of vendor funded cooperative advertising, respectively.
ASSETS HELD FOR SALE
Assets held for sale consist of newly acquired land, buildings and store
fixtures owned by the Company which the Company intends in the next twelve
months to sell to and lease back from third parties under lease arrangements.
LONG-LIVED ASSETS
The Company evaluates the carrying value of long-lived assets on a
quarterly basis to determine whether events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable and an impairment
loss should be recognized.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts ("temporary differences") at each year end based on
enacted tax laws and statutory rates applicable to the period in which the
temporary differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized. Income tax expense includes both taxes payable
for the period and the change during the period in deferred tax assets and
liabilities.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," encourages but does not require companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations thereof. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the market price of the Company's
stock at the date of grant over the amount an employee must pay to acquire the
stock. See Note 9.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share." SFAS No. 128 establishes standards for
computing and presenting earnings per share ("EPS") and supercedes Accounting
Principles Board Opinion No. 15, "Earnings per Share" ("APB 15"). SFAS No. 128
replaces the presentation of primary EPS with a presentation of basic EPS which
excludes dilution and is computed by dividing income available to common
shareholders by the weighted-average of common shares outstanding during the
period. This statement also requires dual presentation of basic EPS and diluted
EPS on the face of the income statement for all periods presented. Diluted EPS
is calculated similarly to fully diluted EPS pursuant to APB 15, with some
modifications. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. The Company
adopted SFAS No. 128 in fiscal 1997 and has restated all prior period EPS data
presented within these financial statements.
32
<PAGE> 34
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Calculation of shares used in computing per share amounts is summarized as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Common stock outstanding:
Beginning of period............................. 19,113,388 17,105,000 8,723,550
========== ========== ==========
End of period................................... 27,768,832 19,113,388 17,105,000
========== ========== ==========
Issued or acquired during period................ 8,655,444 2,008,388 8,381,450
========== ========== ==========
Weighted average number of shares (basic)......... 26,722,322 17,400,214 10,818,913
Effects of dilutive securities.................... 917,777 611,452 --
---------- ---------- ----------
Weighted average number of shares (diluted)....... 27,640,099 18,011,666 10,818,913
========== ========== ==========
</TABLE>
Shares issuable under employee stock options are excluded from the shares
used in computing diluted per share amounts for fiscal 1996 because their effect
is anti-dilutive.
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.
RECLASSIFICATIONS
Certain prior year financial statement amounts have been reclassified to
conform to the current year presentation.
NEW ACCOUNTING STANDARDS
During fiscal 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which had no effect on the Company's financial position
or results of operations.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes new
standards for the way that public companies report selected information about
operating segments in interim and annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of SFAS No. 131 had no effect
on the financial statements since the Company operates in a single segment.
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosures
about Pensions and Other Postretirement Benefits." This statement was adopted
during fiscal 1998 and only required certain disclosures in the Company's
financial statements. The adoption did not have any effect on the Company's
financial position or results of operations.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-1, "Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use." The SOP defines the characteristics of internal-use computer,
software criteria for capitalization, and financial statement disclosure
requirements. The SOP is effective for fiscal years beginning after December 15,
1998, with earlier application encouraged. The
33
<PAGE> 35
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company will adopt SOP 98-1 in the first quarter of fiscal 1999 and does not
expect that such adoption will have a material effect on the Company's financial
position or results of operations.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 98-5, "Reporting on the
Cost of Start-up Activities." The SOP broadly defines start-up activities as
those one-time activities related to opening a new facility, introducing a new
product or service, conducting business in a new territory, or commencing some
new operation. The SOP requires that the costs of start-up activities be
expensed as incurred and is effective for financial statements for fiscal years
beginning after December 15, 1998, with earlier application encouraged. The
Company's current accounting policy with respect to the cost of start-up
activities (store preopening expenses) is to defer such costs for the
approximately three month period of time that it takes to develop a new store
facility and to expense such costs during the month that the new store opens.
The Company will adopt SOP 98-5 in the first quarter of fiscal 1999, which will
require the Company to change its current accounting policy to expense start-up
costs as incurred. Upon adoption, the Company will expense approximately $1.2
million, which will be reflected in the consolidated statement of operations as
the cumulative effect of a change in accounting principle.
NOTE 2 -- 1996 RECAPITALIZATION
In October 1996, certain affiliates of INVESTCORP S.A. ("Investcorp") and
certain other investors (collectively with Investcorp, the "Investcorp Group")
acquired a 51% common equity interest in the Company for $105.0 million in cash
from the Carmel Trust ("Carmel"), which previously had held 100% of the common
equity interests in the Company. A corporation in which an affiliate of
Investcorp held a minority interest also purchased $40.0 million in aggregate
principal amount of the Company's 12% Subordinated Notes for $40.0 million in
cash, and the Company in turn purchased $40.0 million of preferred stock of
Auto. Transatlantic Finance, Ltd., an affiliate of Carmel ("Transatlantic," and
with Carmel, the "Carmel Group") purchased $10.0 million in aggregate principal
amount of the Company's 12% Subordinated Notes, and the Company in turn
purchased $10.0 million of preferred stock of Auto. Auto then borrowed $100.0
million under the Senior Credit Facility, which together with the net proceeds
from the sale of $125.0 million of Auto's 11% Senior Subordinated Notes due 2006
and the net proceeds from the sale by Auto to the Company of $50.0 million of
preferred stock, following a dividend to the Company by Auto, was used to redeem
the stock of the Company held by Carmel for $238.5 million. Carmel then
purchased from the Company for $100.9 million a 49% common equity interest in
the Company. Auto then repaid amounts outstanding under a then existing credit
agreement, which was terminated, and paid $9.9 million to members of management
pursuant to previously existing equity participation agreements and incurred
additional expenses of $22.7 million related to the foregoing. The foregoing
transactions are referred to individually and collectively as the "1996
Recapitalization." Following the 1996 Recapitalization, the Investcorp Group
owned a 51% common equity interest in the Company, a corporation in which an
affiliate of Investcorp held a minority interest owned $40.0 million in
aggregate principal amount of the Company's 12% Subordinated Notes, Carmel owned
a 49% common equity interest in the Company, Transatlantic owned $10.0 million
in aggregate principal amount of the Company's 12% Subordinated Notes and the
Company owned 100% of the common equity and $50.0 million of preferred stock of
Auto.
Prior to the 1996 Recapitalization, the Company had entered into incentive
compensation agreements with certain of its executives pursuant to which they
would be compensated in a sale of the Company's equity securities as if they
owned specified percentages of the Company's outstanding common stock. Pursuant
to these agreements, three former and four current executive officers received
certain payments in connection with the 1996 Recapitalization based upon the
consideration they would have been entitled to if they had owned an aggregate of
6.4% of the Company's common stock and had sold all of such common stock in
connection with the 1996 Recapitalization at the price per share paid for such
shares in the 1996 Recapitalization. Upon closing of the 1996 Recapitalization,
the Company became obligated to pay
34
<PAGE> 36
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $19.9 million under these equity participation agreements. The
Company expensed this full amount plus a provision for estimated payroll taxes
thereon during the fourth quarter of fiscal 1996 when the 1996 Recapitalization
was consummated and paid $9.9 million (approximately 50% of the total
obligation) with proceeds from the 1996 Recapitalization. The Company paid the
remaining balance in November 1997 and Carmel reimbursed the Company for
approximately 60% (the estimated after-tax cost to the Company) of the amount of
such final payment. Such reimbursement was recorded as a "Stockholder
Receivable" and as "Additional Paid-in Capital."
In addition, the Company incurred legal, accounting, consulting, bridge
loan commitment and other 1996 Recapitalization fees and expenses of
approximately $12.5 million.
The sources and uses of cash in the 1996 Recapitalization which transpired
on October 30, 1996 were as follows (in thousands):
<TABLE>
<S> <C>
SOURCES OF CASH
Issuance of 11% Senior Subordinated Notes................... $125,000
Senior Credit Facility -- Term Loan......................... 100,000
Issuance of 12% Subordinated Notes.......................... 50,000
Capital Contribution from Carmel............................ 100,882
--------
$375,882
========
USES OF CASH
Redemption of stock held by Carmel.......................... $238,468
Payments under Equity Participation Agreements.............. 10,121
Retirement of then existing credit agreement................ 93,072
Payments for debt issuance costs............................ 18,632
Payments for advisory and financing fees.................... 14,542
Increase in working capital................................. 1,047
--------
$375,882
========
</TABLE>
NOTE 3 -- TRAK WEST ACQUISITION
On December 8, 1997, the Company acquired a newly formed subsidiary ("Trak
West") of Trak Auto Corporation ("Trak Auto"). Upon its formation, Trak Auto
contributed to Trak West the fixtures and equipment, merchandise inventories and
store leases of 82 specific store sites in Southern California, together with
the merchandise inventory of the Ontario, California distribution center
operated by Trak Auto. After this contribution, Trak West had no liabilities and
owned no other assets than those previously described.
The Company acquired Trak West for a total cost of approximately $34.5
million and financed its acquisition with a $22.0 million equity investment by
affiliates of the Company's existing stockholders and borrowings under the
Senior Credit Facility. In connection therewith, an affiliate of Investcorp was
paid a $1.0 million placement fee. In connection with the negotiation of the
Trak West acquisition, TG Investments, Ltd., an affiliate of Carmel, was paid a
$1.0 million consulting fee.
The Trak West acquisition was accounted for under the purchase method of
accounting. Accordingly, the results of operations of these stores are included
in the consolidated operating results of the Company from December 9, 1997, the
first day of operations subsequent to the acquisition, and were not material to
the Company's consolidated results of operations for fiscal 1997.
35
<PAGE> 37
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The purchase price was allocated based upon the fair market values of
assets acquired at December 8, 1997 as follows (in thousands):
<TABLE>
<S> <C>
Inventories................................................ $35,322
Closed store reserves...................................... (625)
Benefits costs............................................. (193)
-------
Total............................................ $34,504
=======
</TABLE>
No goodwill was recorded in connection with this acquisition.
The Company incurred $3.1 million and $3.4 million of one-time transition
and integration expenses during fiscal 1998 and fiscal 1997, respectively,
associated with the Trak West acquisition. Such expenses included the costs of
employee training, remerchandising and grand opening advertising for the former
Trak West stores.
NOTE 4 -- TRANSACTIONS AND RELATIONSHIPS WITH RELATED PARTIES
During fiscal 1996, the Company received approximately $18.5 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 under operating lease
arrangements. No such transactions occurred during fiscal 1998 and 1997.
In October 1989, the Company entered into a nine-year lease (the "Initial
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 $1.49 million per year. During January
1994, Missouri Falls Holdings Corp., an affiliate of Carmel, acquired an
interest in a 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 (the "Subsequent Lease") between a
former tenant and Missouri Falls Partners for approximately 11,683 square feet
of additional office space at a current lease rent of $221,510 per year. In
connection with the 1996 Recapitalization, both the Initial Lease and the
Subsequent Lease were extended through October 2006. Additionally, the Company
rents approximately 5,754 square feet of additional space at these premises for
an annual rental of $106,449 under three separate lease documents with
expiration dates of February and March 2000, respectively. The Company also
leases from MFP Holdings, LLC, an affiliate of Carmel, a parking lot adjacent to
its corporate headquarters for an annual rental of $62,506 under a separate
lease document with an expiration date of October 2006.
The Company paid Transatlantic, in April of 1998, the sum of $1.0 million
on account of fees for past financings.
In connection with the 1996 Recapitalization, $40.0 million of the
Company's 12% Senior Subordinated Notes were acquired by a designee of the
Investcorp Group, Southwest Finance Limited ("Southwest Finance"), a company in
which an affiliate of Investcorp holds a minority interest. In connection with
the purchase of the 12% Subordinated Notes, Southwest Finance Limited received a
fee of $4.0 million. In addition, Transatlantic acquired $10.0 million of the
12% Subordinated Notes. Also, in connection with the 1996 Recapitalization,
Invifin S.A., an affiliate of Investcorp ("Invifin"), received a fee of $1.575
million for providing a standby commitment to fund the amount of the Senior
Credit Facility and the Company paid Investcorp International Inc.
("International") advisory fees of $1.275 million. The Company also paid $3.15
million to International for arranging the Senior Credit Facility.
In addition, in connection with the 1996 Recapitalization, the Company
entered into a five-year agreement for management advisory and consulting
services (the "Management Agreement") with International pursuant to which the
Company paid International at the closing of the 1996 Recapitalization
36
<PAGE> 38
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$5.0 million for the entire term of the Management Agreement in accordance with
its terms. The Management Agreement was terminated in connection with the
completion of an initial public offering of the common stock of the Company, as
more fully described in Note 8. In connection with the termination of the
agreement, the Company recognized a charge to earnings of approximately $3.6
million during the first quarter of fiscal 1998, which represented the
unamortized balance of the prepaid advisory fees.
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1999 1998 ESTIMATED USEFUL LIFE
----------- ----------- ---------------------------
<S> <C> <C> <C>
Land................................ $ 817 $ 921
Buildings........................... 935 1,155 25 years
Leasehold improvements.............. 58,625 47,136 15 years or life of lease
Furniture, fixtures and equipment... 82,484 70,150 10 years
Property under capital leases....... 47,566 45,013 5-15 years or life of lease
Purchased software.................. 7,685 5,720 5 years
-------- --------
198,112 170,095
Less: accumulated depreciation and
amortization...................... (93,075) (84,155)
-------- --------
Property and equipment, net......... $105,037 $ 85,940
======== ========
</TABLE>
Accumulated amortization of property under capital leases totaled $22.7
million and $22.3 million at January 31, 1999 and February 1, 1998,
respectively.
NOTE 6 -- LONG TERM DEBT
SENIOR CREDIT FACILITY
Borrowings under the Senior Credit Facility of Auto are as follows (in
thousands):
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1999 1998
----------- -----------
<S> <C> <C>
Term Loan, variable interest rates, average rate 7.7% and
8.7%, for fiscal 1998 and 1997, respectively, semi-annual
installments payable each June 30 and December 31, final
installment is due October 31, 2003....................... $146,160 $175,000
Revolving Credit Commitment, variable interest rates,
average rate 7.4% and 8.2%, for fiscal 1998 and 1997,
respectively, $125.0 million maximum capacity at January
31, 1999, $45.4 million undrawn availability at January
31, 1999.................................................. 79,000 65,050
-------- --------
Total............................................. 225,160 240,050
Less: current maturities.................................... 840 1,000
-------- --------
$224,320 $239,050
======== ========
</TABLE>
On December 8, 1997, in connection with the consummation of the Trak West
acquisition, Auto amended and restated its Senior Credit Facility to provide
maximum borrowings of $300.0 million, subject to the limitations on the
incurrence of indebtedness under the indenture for Auto's 11% Senior
Subordinated Notes. As amended and restated, the Senior Credit Facility provides
for a $175.0 million term loan and a revolving credit facility with maximum
borrowings of $125.0 million. In addition to increasing the term loan
37
<PAGE> 39
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and revolving credit facility availability by $75.5 million and $25.0 million,
respectively, the amendment and restatement primarily provided for: (i) an
initial reduction in the interest rate for the term loan and the revolving
credit facility and the introduction of a pricing grid which periodically
permits adjustment based upon Auto's degree of leverage; (ii) the elimination of
the previous borrowing base restrictions on revolving credit borrowings; (iii)
capital expenditure "baskets" for the Trak West acquisition and for up to $50.0
million of other acquisitions subject to pro forma compliance with financial
covenants; and (iv) a $50.0 million revolving capital expenditure "basket" of
funds that can be used by Auto to finance store purchase and development
activities. The term loan portion of the Senior Credit Facility matures on
October 31, 2003 and the revolving credit portion matures on October 31, 2001.
The Company recognized an extraordinary charge of $5.1 million ($3.0
million net of income taxes) in the fourth quarter of fiscal 1997 to reflect the
write-off of certain deferred financing costs associated with the early
extinguishment of the original Senior Credit Facility.
Borrowings under the Senior Credit Facility are collateralized by a first
priority security interest in substantially all of the personal property of
Auto, subject to certain permitted liens. The Company also issued a guarantee of
such borrowings under the Senior Credit Facility, which guarantee is
collateralized by a pledge by the Company of all issued and outstanding capital
stock of Auto. In addition, the revolving credit portion allows for the issuance
of letters of credit that reduce revolver availability. At January 31, 1999,
$0.6 million in letter of credits were outstanding. There were no letters of
credit outstanding as of February 1, 1998.
The Senior Credit Facility prohibits, with certain limited exceptions, the
optional or mandatory prepayment or other defeasance of Auto's 11% Senior
Subordinated Notes. The Senior Credit Facility further requires that, under
certain circumstances, Auto make prepayments of the term loan outstanding
thereunder with (i) 50% of any Excess Cash Flow (as defined therein) and (ii)
50% of the Net Proceeds (as defined therein) from certain offerings of the
Company's voting stock. In addition, a "change of control" allows the lenders to
accelerate the loans. A change of control occurs whenever anyone acquires the
power to vote at least 30% of the common stock, on a fully diluted basis (as
defined), and holds a greater percentage of shares of common stock than the
Investcorp Group. A change of control also occurs if a majority of the Board of
Directors ceases to be composed of Investcorp Group nominees.
Commitment fees on available funds under the Revolving Credit Commitment
are payable quarterly in arrears on the average daily-unused amount of the total
commitment at the rate of 3/8 of 1% per annum. Commitment fees totaling $295,000
and $194,000 were incurred in fiscal 1998 and 1997, respectively.
The terms of the Senior Credit Facility include restrictions on
investments, capital expenditures, dividends and certain other payments and
require the Company to meet certain financial covenants. The Company believes it
was in compliance with all such covenants at January 31, 1999.
11% SENIOR SUBORDINATED NOTES DUE 2006
On October 30, 1996, Auto issued and sold in a private placement $125.0
million aggregate principal amount of 11% Senior Subordinated Notes due 2006
(the "Old 11% Notes") pursuant to an indenture, between Auto and The Bank of New
York (as successor to Wells Fargo Bank, N.A.), as Trustee. On March 13, 1997,
Auto offered to exchange up to all outstanding Old 11% Notes for a like
principal amount of its 11% Series A Senior Subordinated Notes due 2006 (the
"11% Senior Subordinated Notes") issued pursuant to the Indenture in a
transaction registered under the Securities Act of 1933, as amended. Auto
consummated the exchange offer on June 18, 1997, with all of the Old 11% Notes
being exchanged for the 11% Senior Subordinated Notes.
The indenture potentially restricts Auto from making additional borrowings
under its Revolving Credit Commitment that, when added to the aggregate amount
of outstanding borrowings under the Senior Credit Facility (including term
loans), exceed $200.0 million. This restriction does not apply if the new
borrowings
38
<PAGE> 40
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are of a type specifically permitted by the indenture, or, if after giving pro
forma effect to such new borrowings the ratio of Auto's consolidated EBITDA to
fixed charges (as such terms are defined in the indenture) exceeds 2.25 to 1.
Accordingly, the Company has been able to exceed the potential restriction and
does not anticipate that it will limit access to further borrowings under the
Senior Credit Facility.
The indenture also provides that upon a "change of control," as defined
therein, each holder of 11% Senior Subordinated Notes will have the right to
require Auto to repurchase all or any part of such holder's notes at a purchase
price in cash equal to 101% of the principal amount plus accrued and unpaid
interest, if any, to the date of purchase.
The 11% Senior Subordinated Notes bear interest at 11% per year, payable
semiannually in arrears on each May 1 and November 1, and mature on November 1,
2006. The 11% Senior Subordinated Notes are general, unsecured senior
subordinated obligations. The 11% Senior Subordinated Notes were guaranteed
fully, unconditionally and jointly and severally by all of Auto's subsidiaries
and will be similarly guaranteed by any future United States subsidiaries of
Auto, on a senior subordinated basis. On April 8, 1998, Auto's subsidiaries were
merged into Auto.
On and after November 1, 2001, the 11% Senior Subordinated Notes will be
redeemable, at the option of Auto, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the redemption prices set forth below
(expressed in percentages of principal amount), plus accrued and unpaid interest
thereon, if any, to the applicable redemption date, if redeemed during the
12-month period beginning on November 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------ ----------
<S> <C>
2001...................................................... 105.500%
2002...................................................... 103.667%
2003...................................................... 101.833%
2004 and thereafter....................................... 100.000%
</TABLE>
In April 1998, 35% of the aggregate principal amount of the 11% Senior
Subordinated Notes was redeemed at a redemption price of 110% of the principal
amount thereof, plus accrued and unpaid interest thereon, to the redemption
date, with the net proceeds of an initial public offering of Common Stock. See
Note 8.
12% SUBORDINATED NOTES DUE 2008
On October 30, 1996, the Company issued and sold in a private placement
$10.0 million aggregate principal amount of 12% Subordinated Series A Notes due
2008 (the "Series A Notes") pursuant to an Indenture between the Company and
Transatlantic Finance, Ltd., as Trustee, and $40.0 million aggregate principal
amount of 12% Subordinated Series B Notes due 2008 (the "Series B Notes," and
together with the Series A Notes, the "12% Subordinated Notes") pursuant to an
Indenture between the Company and AIBC, N.V., as Trustee. The terms of the
Series A Notes and the Series B Notes are identical. These notes were retired,
in full, with proceeds of the Company's March 1998 initial public offering of
common stock.
39
<PAGE> 41
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in other assets are the following charges associated with the 1996
Recapitalization which have been deferred and are being amortized over the life
of the related debt instrument (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1999 1998
----------- -----------
<S> <C> <C>
11% Senior Subordinated Notes......................... $5,341 $ 7,711
12% Subordinated Notes................................ -- 4,000
Senior Credit Facility................................ 1,293 1,418
Accumulated amortization.............................. (1,781) (1,222)
------ -------
Total....................................... $4,853 $11,907
====== =======
</TABLE>
At January 31, 1999, the estimated maturities of long term debt were (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1999...................................................... $ 840
2000...................................................... 840
2001...................................................... 117,640
2002...................................................... 52,920
2003...................................................... 52,920
Thereafter................................................ 81,250
--------
$306,410
========
</TABLE>
As more fully described in Note 8, the Company completed an initial public
offering of its common stock in March 1998. Net proceeds from the offering were
used to reduce outstanding debt of the Company, as follows (in millions):
<TABLE>
<S> <C>
12% Subordinated Notes...................................... $ 50.0
11% Senior Subordinated Notes............................... 43.8
Senior Credit Facility...................................... 53.8
Premiums on retirement...................................... 4.9
Accrued interest............................................ 6.6
------
$159.1
======
</TABLE>
Upon the consummation of the offering, the Company recorded an
extraordinary loss of approximately $6.8 million, net of taxes. Such
extraordinary loss consisted primarily of the premiums paid in connection with
the redemption of indebtedness and the write-off of a portion of deferred debt
issuance costs.
NOTE 7 -- LEASES
The Company leases its office and warehouse facilities, all but six of its
retail stores, and a majority of its 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.
On November 18, 1997, the Company reached an agreement with an unrelated
third party for the establishment of a $125.0 million operating lease facility
for the acquisition and development of approximately 100 to 125 new stores over
the period from February 1, 1998 through May 31, 1999. As of January 31, 1999,
approximately $35.8 million of this $125.0 million leasing facility had been
committed.
40
<PAGE> 42
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Operating lease rental expense is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Minimum rentals....................................... $75,689 $57,900 $51,214
Contingent rentals.................................... 1,088 1,251 1,455
Sublease rentals...................................... (5,089) (4,629) (4,763)
------- ------- -------
$71,688 $54,522 $47,906
======= ======= =======
</TABLE>
Future minimum lease obligations under non-cancelable leases at January 31,
1999 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
FOR FISCAL YEARS LEASES LEASES
- ---------------- --------- -------
<S> <C> <C>
1999........................................................ $ 73,477 $11,597
2000........................................................ 69,096 7,213
2001........................................................ 65,278 6,514
2002........................................................ 63,126 5,275
2003........................................................ 52,018 2,280
Thereafter.................................................. 313,088 1,106
-------- -------
$636,083 33,985
Less: amounts representing interest......................... (7,102)
-------
Present value of obligations................................ 26,883
Less: current portion....................................... (8,749)
-------
Long term obligation........................................ $18,134
=======
</TABLE>
The above amounts include future minimum lease obligations under operating
leases with affiliates totaling $15.7 million at January 31, 1999. Operating
lease rental expense under leases with affiliates totaled $3.2 million for the
year ended January 31, 1999, $2.4 million for the year ended February 1, 1998,
and $3.2 million for the year ended February 2, 1997.
Future minimum sublease rental income under non-cancelable subleases for
fiscal 1999, 2000, 2001, 2002, 2003 and thereafter is approximately $5.2
million, $4.7 million, $4.4 million, $4.2 million, $3.5 million and $11.3
million, respectively.
NOTE 8 -- CAPITAL STOCK AND INITIAL PUBLIC OFFERING
In connection with the 1996 Recapitalization, the Company completed a
recapitalization of its common stock. All 100 shares of common stock outstanding
at the date of the recapitalization were converted into 8,723,550 shares of
Class A, Class C, Class D and Class F capital stock. All of the Class F stock
(consisting of 100 shares) was then redeemed at an aggregate redemption price of
approximately $238.5 million. Concurrently therewith, the Company issued
8,381,450 shares of Class E stock to Carmel at an issue price of $100.9 million.
See Note 2.
In December 1997, the Company sold 180,600 shares of its Class B stock to
certain executives of the Company. See Note 9. Also in December 1997, in
connection with the acquisition of Trak West, the Company sold 1,827,788 shares
of stock to affiliates of the Company's existing stockholders. See Note 3.
41
<PAGE> 43
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On March 17, 1998, the Company completed an initial public offering (the
"IPO") of approximately 8.6 million shares of its common stock, generating
proceeds of approximately $159.1 million, net of offering expenses. The offering
proceeds were used to retire the Company's 12% Subordinated Notes and other
indebtedness as more fully described in Note 6. Upon retirement of the 12%
Subordinated Notes, all of the outstanding preferred stock of Auto was
cancelled.
In connection with the IPO, the Company's Board of Directors and
stockholders approved a 17.105 to 1 stock split effected in the form of a stock
dividend. Accordingly, all share and option information contained herein has
been adjusted to give retroactive effect to such stock split. In addition, under
the terms of the Company's restated Certificate of Incorporation in effect at
the time of the IPO, each share of each class of issued and outstanding capital
stock of the Company automatically converted to common stock upon the
consummation of the IPO on March 17, 1998.
The Company's capital stock, as adjusted for the stock split discussed
above, consists of the following:
<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING
-----------------------------------------
SHARES JANUARY 31, FEBRUARY 1, FEBRUARY 2,
TYPE OF STOCK AUTHORIZED(1) 1999 1998 1997
- ------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Class A, $.01 par value................... -- -- 7,318,135 7,318,135
Class B, $.01 par value................... -- -- 180,600 --
Class C, $.01 par value................... -- -- 2,252,061 1,319,890
Class D, $.01 par value................... -- -- 85,525 85,525
Class E, $.01 par value................... -- -- 9,277,067 8,381,450
Class F, $.01 par value................... -- -- -- --
Common stock, $.01 par value.............. 50,000,000 27,768,832 -- --
---------- ---------- ---------- ----------
50,000,000 27,768,832 19,113,388 17,105,000
========== ========== ========== ==========
</TABLE>
- ---------------
(1) In March 1998, the Company amended its Certificate of Incorporation to
eliminate all classes of stock other than common stock and increase the
total common stock authorization to 50 million shares.
NOTE 9 -- EMPLOYEE BENEFIT PLANS
The Company provides various health, welfare and disability benefits to its
full-time employees which are funded primarily by Company contributions. The
Company does not provide post-employment or post-retirement health care or life
insurance benefits to its employees.
RETIREMENT PROGRAM
The Company sponsors a 401(k) plan which is available to all employees of
the Company who have completed one year of continuous service. Effective October
1, 1997, the Company matches from 40% to 60% of employee contributions in 10%
increments, based on years of service with the Company, up to 4% of the
participant's base salary. Prior to October 1, 1997, the Company matched 20% of
employee contributions, up to 6% of the participant's base salary, without
regard to years of service. Participant contributions are subject to certain
restrictions as set forth in the Internal Revenue Code. The Company's matching
contributions totaled $1,258,500, $394,500 and $288,000 for fiscal years 1998,
1997 and 1996, respectively.
1996 STOCK OPTION PLANS
On October 30, 1996, the Company awarded options to purchase shares of
common stock under its Associate Stock Option Plan (the "Associate Plan") and
its Executive Stock Option Plan (the "Executive Plan" and together with the
Associate Plan, the "Plans") in order to provide incentives to store managers
and
42
<PAGE> 44
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
salaried corporate and warehouse employees of the Company. In October 1996 and
February 1997, the Company's Board of Directors approved the Associate Plan and
the Executive Plan, respectively.
The Plans may be administered by a committee of the Board of Directors of
the Company, which would have broad authority in administering and interpreting
the Plans, or, if a committee has not been appointed, by the entire Board of
Directors. The Plans provide that, at such time as the Company has a class of
equity securities registered under Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the committee (if appointed) must consist
entirely of "Non-Employee Directors" (as defined in Rule 16b-3 under the
Exchange Act). A committee has not yet been appointed to administer the Plans.
Options to purchase up to an aggregate of 1,026,300 and 684,200 shares of
common stock may be granted under the Associate Plan and the Executive Plan,
respectively. Options granted under the Plans may be options intended to qualify
as incentive stock options under Section 422 of the Internal Revenue Code of
1986, as amended, or options not intended to so qualify. In the event of a sale
of more than 80% of the outstanding shares of capital stock of the Company or
80% of its assets, as defined, all options under the plan are vested. All
options expire on the seventh anniversary of the date of grant (or, under
certain circumstances, 30 days later).
As a result of the IPO, each option granted under the Plans will become
exercisable upon vesting. Options granted under the Associate Plan vest in three
equal installments on the second, third and fourth anniversaries of the date of
their grant, assuming the associate's employment continues during this period
("Four Year Vesting"). Options granted under the Executive Plan are subject to
the Four Year Vesting as to 84% of such options and performance vesting (over
the same four years) as to the remaining 16%. The performance vesting criteria
is based upon achieving specified operating results. Partial vesting of options
subject to performance vesting occurs if the Company achieves less than 95% of
the specified operating results. Any portion of options granted under the
Executive Plan which are subject to performance vesting and which do not vest
during the four years will automatically vest 90 days prior to the end of the
option's term. If the specified operating results are exceeded for any year by
at least 10%, the executive will receive options for up to an additional 5% (20%
on a cumulative basis) of his or her original option grant. Based on 1998
results, an additional 8,713 options will be granted in April 1999.
As of January 31, 1999, the Company has granted options to purchase 796,416
shares under the Associate Plan and 390,908 shares under the Executive Plan, net
of cancellations and exercises. Except for 96,062 options granted under the
Executive Plan (see "Employment Agreements" below), the exercise prices
represent the fair market value at the date of grant based upon the price paid
for such shares in the 1996 Recapitalization and other valuation analyses
performed by the Company, or actual market prices as determined by trades
reported by the New York Stock Exchange subsequent to the IPO, as applicable.
DIRECTORS STOCK PLAN
Directors who are currently associated with the Investcorp Group or the
Carmel Group do not currently receive any compensation for serving as directors.
In June 1998, the Company's Board of Directors adopted a non-employee director
compensation plan, subject to shareholder approval. The plan provides for an
aggregate of up to 50,000 shares in the form of restricted stock grants or stock
options. The Board of Directors has adopted a policy which provides each
non-employee director with an annual stipend of $25,000, of which at least
$10,000 must be paid in the form of restricted stock grants.
EMPLOYMENT AGREEMENTS
Auto has entered into employment agreements with the Chairman and the
President pursuant to which they are paid fixed base salaries and are eligible
for bonuses based upon earnings per share. The agreements do not contain stated
termination dates, but rather are terminable at will by either party. If Auto
were to
43
<PAGE> 45
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
terminate the employment of the Chairman and President without cause, or if they
terminate their employment for good reason, Auto has agreed to pay to the
Chairman his base salary and performance bonus for a period of 24 months and to
the President his base salary for one year. The Chairman also received a loan of
$550,000 from the Company, bearing interest at 4.535% and due in 1999.
In connection with the commencement of his employment, the Company agreed
to pay the Chairman $1.0 million which, in turn, was used by the Chairman to
purchase 83,079 shares of common stock from a member of the Investcorp Group,
reflecting a share value of $12.04, the fair market value at the date of the
agreement, based on the price paid for such shares in the 1996 Recapitalization.
The Company also loaned the Chairman approximately $440,000 to pay the income
tax consequences of the award. The loan bears interest at the rate applicable to
borrowings under the Revolving Credit Commitment. This loan was paid in full in
December 1998.
In connection with the execution of his employment agreement, the Company's
Chairman received an option for 401,967 shares of common stock, exercisable at
$12.04 per share. As of January 31, 1999, this option vested to the extent of
100,491 shares. As a result of vesting acceleration triggered by the IPO, this
option will generally vest and become exercisable in March 2000, subject to
earlier vesting based upon the achievement of certain EBITDA targets and the
occurrence of other specified events. In connection with the Trak West
acquisition, the Company's Chairman received an option for 39,940 shares of
common stock, exercisable at $12.04 per share, effective as of February 1, 1998.
This option will vest and become exercisable in four equal annual installments
beginning in April 1999. In connection with the issuance of these options, the
Company will recognize a charge to earnings of approximately $0.2 million over
the vesting period for the difference between the exercise price and the fair
market value of the common stock at the date of grant. In connection with the
IPO, the Company's Chairman received an option for 216,634 shares of common
stock, exercisable at $20.00 per share, the fair market value at the date of
grant based on the IPO. This option will vest and become exercisable in three
equal annual installments beginning in April 2000.
In connection with the execution of his employment agreement, the Company's
President received an option for 299,337 shares of common stock, exercisable at
$12.04 per share. This option has both vested and become exercisable to the
extent of 106,905 shares. As a result of vesting acceleration triggered by the
IPO, the remainder of this option will generally vest and become exercisable in
March 2000, subject to earlier vesting based upon the achievement of certain
EBITDA targets and the occurrence of other specified events.
MANAGEMENT STOCK PURCHASE AGREEMENTS AND LOANS PLANS
In December 1997, the Company entered into stock purchase agreements with
certain executives of the Company. Under the terms of the agreements, the
Company agreed to issue a total of 180,600 shares of its common stock at a price
of $12.04 per share, the same price paid in the 1996 Recapitalization. In
addition, the Company granted certain executives non-qualified options to
purchase 96,058 shares of its common stock, also at a price of $12.04 per share.
The options contain similar terms and vesting provisions as existing options
under the Company's Executive Stock Option Plan. In connection with the issuance
of these shares, the Company recognized a charge to earnings of $0.9 million in
the fourth quarter of fiscal 1997 for the difference between the issuance price
and the fair market value of the stock at the date of sale. In addition, in the
fourth quarter of fiscal 1997, the Company recorded deferred compensation of
approximately $0.5 million to reflect the difference between the exercise price
and the fair market value of stock associated with the options granted to
certain executives. The deferred compensation will produce a charge to earnings
over the vesting period of the options.
Of the total consideration paid to the Company of $2.2 million in
connection with the purchase of the Company's common stock by certain
executives, approximately $1.0 million was loaned by the Company to certain
executives to purchase 84,542 of the shares (the "Stock Loans"). The Stock Loans
are collateralized
44
<PAGE> 46
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
by the stock under pledge agreements, provide full recourse to the executive,
bear interest at the average rate paid by the Company under the revolving
portion of its Senior Credit Facility, and mature in December 2003.
OPTIONS ACTIVITY
Activity in all of the Company's stock option plans is summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Balance at Jan. 28, 1996............................ -- $ --
Granted........................................... 1,549,441 12.04
Exercised......................................... -- --
Canceled.......................................... (8,980) 12.04
---------
Balance at Feb. 2, 1997............................. 1,540,461 12.04
Granted........................................... 561,709 16.18
Exercised......................................... -- --
Canceled.......................................... (79,518) 12.04
---------
Balance at Feb. 1, 1998............................. 2,022,652 13.19
Granted........................................... 267,784 25.03
Exercised......................................... (30,444) 12.04
Canceled.......................................... (114,790) 13.66
---------
Balance at Jan. 31, 1999............................ 2,145,202 $14.56
=========
</TABLE>
The following table summarizes information about the Company's stock
options at January 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- -------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISABLE PRICE
- --------------- ----------- ---------------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$12.04 1,619,373 5.03 $12.04 371,972 $12.04
$19.84 - $20.00 308,600 6.17 20.00 -- --
$20.22 - $30.66 217,229 6.67 25.60 -- --
- --------------- --------- ---- ------ ------- ------
$12.04 - $30.66 2,145,202 5.36 $$14.56 371,972 $12.04
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Had compensation costs for the
Company's stock option plans been determined based on the fair value at the
grant date for awards, consistent with the provisions of SFAS No. 123, net
income (loss) and diluted earnings (loss) per share would have been changed to
the pro forma amounts indicated below (in thousands except per share data):
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Net income (loss):
As reported........................................ $20,718 $ (771) $(24,659)
Pro forma.......................................... 19,621 (1,230) (24,803)
Diluted earnings (loss) per share:
As reported........................................ $ 0.75 $ (0.04) $ (2.28)
Pro forma.......................................... 0.71 (0.07) (2.29)
</TABLE>
45
<PAGE> 47
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black Scholes method of option pricing and is based upon the following
assumptions:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------
1998 1997 1996
------------ ------- -------
<S> <C> <C> <C>
Dividend yield..................................... 0% 0% 0%
Risk free interest rate............................ 4.25 - 5.63% 5.95% 6.07%
Expected life of options........................... 6 years 4 years 5 years
Expected volatility................................ 43% -- --
</TABLE>
NOTE 10 -- SUPPLEMENTAL SCHEDULE OF CASH FLOWS
Interest paid during fiscal 1998, 1997 and 1996 amounted to $29.4 million,
$36.2 million and $13.4 million, respectively. No income taxes were paid in
fiscal 1998, 1997 and 1996.
The Company acquired certain fixtures and other equipment under capital
lease arrangements totaling approximately $10.5 million, $9.7 million and $2.6
million in fiscal 1998, 1997 and 1996, respectively.
NOTE 11 -- INCOME TAXES
The provision (benefit) for income taxes (exclusive of extraordinary items)
is comprised of the following (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------
1998 1997 1996
------- ------ --------
<S> <C> <C> <C>
Current:
Federal............................................. $ 225 $ -- $ --
State............................................... 130 -- --
------- ------ --------
355 -- --
------- ------ --------
Deferred:
Federal............................................. 12,614 1,260 (9,750)
State............................................... 2,777 297 (2,109)
------- ------ --------
15,391 1,557 (11,859)
------- ------ --------
Total....................................... $15,746 $1,557 $(11,859)
======= ====== ========
</TABLE>
The following table summarizes the differences between the Company's
provision (benefit) for income taxes and the expected provision (benefit),
exclusive of extraordinary items (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------
1998 1997 1996
------- ------ --------
<S> <C> <C> <C>
Income (loss) before income taxes and extraordinary
loss................................................ $43,231 $3,801 $(36,518)
Federal income tax rate............................... 35% 34% 34%
------- ------ --------
Expected provision for income taxes................... 15,131 1,292 (12,416)
State taxes, net of federal benefit................... 2,718 196 (1,634)
Tax credits and other................................. (2,103) 69 2,191
------- ------ --------
Actual provision (benefit) for income taxes........... $15,746 $1,557 $(11,859)
======= ====== ========
</TABLE>
46
<PAGE> 48
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The current and non-current deferred tax assets and liabilities consist of
the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1999 1998
----------- -----------
<S> <C> <C>
Gross deferred tax assets:
Store closing costs....................................... $ 2,112 $ 4,503
Accrued benefits.......................................... 3,990 3,481
Capital lease expenditures................................ 765 824
Internally developed software............................. 1,865 2,798
Preopening costs.......................................... 239 360
Provision for site selection costs........................ 1,189 1,783
Provision for bad debts................................... 675 953
Tax loss carryforwards.................................... 5,487 10,216
Other..................................................... 973 2,184
------- -------
Total gross deferred tax assets................... 17,295 27,102
------- -------
Gross deferred tax liabilities:
Inventory................................................. 8,948 8,500
Depreciation.............................................. 1,698 647
------- -------
Total gross deferred tax liabilities.............. 10,646 9,147
------- -------
Net deferred tax assets..................................... $ 6,649 $17,955
======= =======
</TABLE>
The net deferred tax assets are reflected in the accompanying balance
sheets as follows:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1999 1998
----------- -----------
<S> <C> <C>
Current deferred tax liabilities, net....................... $(4,046) $(4,066)
Non-current deferred tax assets, net........................ 10,695 22,021
------- -------
Net deferred tax assets..................................... $ 6,649 $17,955
======= =======
</TABLE>
The Company has recorded deferred tax assets of approximately $5.5 million
as of January 31, 1999 reflecting the benefit of tax loss carryforwards totaling
$13.7 million which expire in 2013. Realization is dependent on generating
sufficient taxable income prior to expiration of the loss carryforwards.
Utilization of certain of the net operating loss carryforwards may be limited
under Section 382 of the Internal Revenue Code. Although realization is not
assured, management believes it is more likely than not that all the deferred
tax assets 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 assets considered realizable,
however, could be reduced in the near term if estimates of future taxable income
during the carryforward period are reduced.
NOTE 12 -- STORE CLOSING COSTS
Activity in the provision for store closings and the related store closing
costs is as follows (in thousands):
<TABLE>
<CAPTION>
BEGINNING STORE CLOSING PURCHASE ACCOUNTING PAYMENTS AND ENDING
FISCAL YEAR BALANCE COSTS ADJUSTMENT NON-CASH CHARGES BALANCE
- ----------- --------- ------------- ------------------- ---------------- -------
<S> <C> <C> <C> <C> <C>
1998................. $11,352 $ 335 $ -- $(6,363) $ 5,324
1997................. 15,842 1,640 625 (6,755) 11,352
1996................. 5,298 14,904 -- (4,360) 15,842
</TABLE>
47
<PAGE> 49
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1997, the Company updated its strategic plan relating to the
closing of certain stores. As a result of the 1996 Recapitalization, the Company
obtained greater access to capital resources including the availability of a
sale-leaseback facility for new stores, thereby improving the Company's ability
to implement such store closings. While management believes that there will be
long-term operating benefits from this strategy, the Company will incur costs
for early lease terminations or negative sub-lease rentals for stores vacated
under this plan and, accordingly, a charge to earnings of approximately $12.9
million was recorded in January 1997.
Store closing costs include estimates for vacancy periods of the related
stores through the expiration of the underlying leases, collectibility of rents
due from sub-tenants, and similar factors.
NOTE 13 -- LEGAL MATTERS
The Company was served with a lawsuit that was filed in the Superior Court
in San Diego, California on May 4, 1998. The case is brought by two former store
managers and a former assistant manager. It purports to be a class action for
all present and former California store managers and senior assistant managers
and seeks overtime pay for a period beginning in May 1995 as well as injunctive
relief requiring overtime pay in the future. This case is in the early stages of
discovery. The Company was recently served with two other lawsuits purporting to
be class actions filed in California state courts in Orange and Fresno Counties
by thirteen other former and current employees. These lawsuits include similar
claims to the San Diego lawsuit, except that they also include claims for unfair
business practices which seek overtime from October 1994. The Orange County
lawsuit initially included a claim for punitive damages based on an unlawful
conversion theory. On March 9, 1999, the Orange County court dismissed the
conversion theory and claim for punitive damages but gave the plaintiff 30 days
to refile an amended claim. These plaintiffs have since filed an amended
complaint which also includes a claim for conversion and asks for punitive
damages. The Company has again requested the court to eliminate these items from
the case. The three cases have recently been "coordinated" before one judge in
San Diego County who will be selected shortly. If these cases are permitted by
the courts to proceed as a class action and are decided against the Company, the
aggregate potential exposure could be material to results of operations for the
year in which the cases are ultimately decided. The Company does not believe,
however, that such an adverse outcome, if it were to happen, would materially
affect the Company's financial position or operations in subsequent periods.
Although at this early stage in the litigation it is difficult to predict its
outcome with any certainty, the Company believes that there are meritorious
defenses to all of these cases and intends to defend them vigorously.
The Company currently and from time to time is involved in other litigation
incidental to the conduct of business. The damages claimed 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 consolidated
financial condition, results of operations or cash flow.
48
<PAGE> 50
CSK AUTO CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments, which are
determined by reference to quoted market prices, where available, or are based
upon comparisons to similar instruments of comparable maturities, are as follows
(in thousands):
<TABLE>
<CAPTION>
JANUARY 31, 1999 FEBRUARY 1, 1998
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents....................... $ 7,490 $ 7,490 $ 4,852 $ 4,852
Receivables..................................... 58,867 58,867 37,566 37,566
Amounts due under Senior Credit Facility........ 225,160 225,160 240,050 240,050
Obligations under 11% Senior Subordinated
Notes......................................... 81,250 85,313 125,000 137,500
Obligations under 12% Subordinated Notes........ -- -- 50,000 50,000
</TABLE>
49
<PAGE> 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to Directors is
incorporated by reference from the information under the caption "Election of
Directors" contained in our definitive proxy statement in connection with the
solicitation of proxies for our 1999 Annual Meeting of Stockholders to be held
on June 8, 1999 (the "Proxy Statement").
The required information concerning our Executive Officers is also
contained in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information under the caption "Executive Compensation" contained in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
information under the caption "CSK Auto Corporation Stock Beneficially Owned by
Officers and Directors" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
contained in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of CSK Auto
Corporation are included in Item 8. of this Report on Form 10-K.
Report of Independent Accountants
Consolidated Balance Sheets -- January 31, 1999 and February 1, 1998
Consolidated Statements of Operations -- Fiscal Years Ended January 31,
1999, February 1, 1998 and February 2, 1997
Consolidated Statements of Stockholders' Equity -- Fiscal Years Ended
January 31, 1999, February 1, 1998 and February 2, 1997
Consolidated Statements of Cash Flows -- Fiscal Years Ended January 31,
1999, February 1, 1998 and February 2, 1997
Notes to Consolidated Financial Statements
(a)(2) The following financial statement schedule of CSK Auto Corporation
for the three years ended January 31, 1999 is included in this Report on Form
10-K, as required by Item 14(d): Schedule II -- Valuation and Qualifying
Accounts and report of independent accountants thereon.
50
<PAGE> 52
(a)(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
3.01*** Restated Certificate of Incorporation of the Company.
3.02*** Certificate of Correction to the Restated Certificate of
Incorporation of the Company.
3.03 Amended and Restated By-laws of the Company.
4.01* Indenture, dated as of October 30, 1996, by and among CSK
Auto, Inc. ("Auto"), Kragen Auto Supply Co., Schuck's
Distribution Co. and The Bank of New York (as successor to
Wells Fargo Bank, N.A.), as Trustee, including form of Note.
4.02** Amended and Restated Credit Agreement, dated as of December
8, 1997, among Auto, the several Lenders from time to time
parties thereto, The Chase Manhattan Bank, as administrative
agent for the Lenders, and Lehman Commercial Paper Inc., as
documentation agent for the Lenders and Chase Securities
Inc., as arranger.
4.03** Form of Common Stock certificate.
10.01**** Amended and Restated Employment Agreement, dated as of June
12, 1998, between Auto and James Bazlen.
10.02+ Stock Option Agreement, dated November 1, 1996, between the
Company and James Bazlen.
10.03**** Amended and Restated Employment Agreement, dated as of June
12, 1998, between Auto and Maynard Jenkins.
10.04** Promissory Note of Maynard Jenkins, dated December 21, 1997.
10.05** Stock Pledge Agreement between the Company and Maynard
Jenkins, dated December 21, 1997.
10.06.1** Stock Acquisition Agreement, dated January 27, 1997, among
Maynard Jenkins, Auto and the Company.
10.06.2 First Amendment to Stock Acquisition Agreement.
10.07+ Stock Option Agreement, dated January 27, 1997, between the
Company and Maynard Jenkins.
10.08** Stock Option Agreement, dated February 1, 1998, between the
Company and Maynard Jenkins.
10.09** Stock Option Agreement, dated March 9, 1998, between the
Company and Maynard Jenkins.
10.10+ Restated 1996 Associate Stock Option Plan.
10.11+ Restated 1996 Executive Stock Option Plan.
10.12 Intentionally Omitted
10.13**** CSK Auto Corporation Directors Stock Plan.
10.14 Restricted Stock Agreement, dated as of June 12, 1998,
between The Company and John F. Antioco.
10.15 Restricted Stock Agreement, dated as of October 7, 1998,
between the Company and Morton Godlas.
10.16* Amended and Restated Lease, dated October 23, 1989 (the
"Missouri Falls Lease"), between Auto and Missouri Falls
Associates Limited Partnership.
</TABLE>
51
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
10.17* First Amendment to the Missouri Falls Lease, dated November
22, 1991, between Auto and Missouri Falls Associates Limited
Partnership.
10.18* Amendment to Leases, dated as of October 30, 1996, by and
between Missouri Falls Associates Limited Partnership and
Auto.
10.19* Agreement for Management Advisory, Strategic Planning and
Consulting Services, dated October 30, 1996, between Auto
and Investcorp International Inc.
10.20* Stockholders' Agreement, dated October 30, 1996, by and
among the Initial Investcorp Group, Cantrade Trust Company
Limited in its capacity as trustee of The Carmel Trust, the
Company and Auto.
10.20.1** Form of Supplemental Stockholders' Agreement Signature Page.
10.20.2+ Amendment to the Stockholders' Agreement, dated June 12,
1998.
10.20.3 Letter Agreement re: Stockholders' Agreement.
10.21* Stock Purchase Agreement, dated September 29, 1996.
10.22** Senior Executive Stock Loan Plan.
10.23** Form of Stock Purchase Agreement.
21.01+ Subsidiary of the Company.
23.01+ Consent of PricewaterhouseCoopers LLP.
</TABLE>
- ---------------
* Incorporated herein by reference to CSK Auto, Inc.'s Registration Statement
on Form S-4 (File No. 333-22511).
** Incorporated herein by reference to our Registration Statement on Form S-1
(File No. 333-43211).
*** Incorporated herein by reference to our Annual Report on Form 10-K, filed
on May 4, 1998 (Reg. No. 001-13927).
**** Incorporated herein by reference to our Quarterly Report on Form 10-Q,
filed on September 11, 1998 (Reg. No. 001-13927).
+ Incorporated herein by reference to our Registration Statement on Form S-1
(File No. 333-67231).
(b) Reports on Form 8-K; None.
52
<PAGE> 54
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
CSK Auto Corporation
Our audits of the consolidated financial statements referred to in our report
dated April 2, 1999, appearing in this Annual Report on Form 10-K of CSK Auto
Corporation and subsidiary also included an audit of the financial statement
schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Phoenix, Arizona
April 2, 1999
53
<PAGE> 55
CSK AUTO CORPORATION AND SUBSIDIARY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS 1998, 1997 AND 1996
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------- ------------ ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Reserve for Bad Debts
Year End February 2, 1997..................... $1,953 $1,290 $(1,475) $1,768
Year End February 1, 1998..................... 1,768 2,033 (1,398) 2,403
Year End January 31, 1999..................... 2,403 1,591 (2,291) 1,703
</TABLE>
54
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on this
27th day of April 1999.
CSK AUTO CORPORATION
By: /s/ MAYNARD JENKINS
------------------------------------
Maynard Jenkins
Chairman and
Chief Executive Officer
55
<PAGE> 57
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
3.01*** Restated Certificate of Incorporation of the Company.
3.02*** Certificate of Correction to the Restated Certificate of
Incorporation of the Company.
3.03 Amended and Restated By-laws of the Company.
4.01* Indenture, dated as of October 30, 1996, by and among CSK
Auto, Inc. ("Auto"), Kragen Auto Supply Co., Schuck's
Distribution Co. and The Bank of New York (as successor to
Wells Fargo Bank, N.A.), as Trustee, including form of Note.
4.02** Amended and Restated Credit Agreement, dated as of December
8, 1997, among Auto, the several Lenders from time to time
parties thereto, The Chase Manhattan Bank, as administrative
agent for the Lenders, and Lehman Commercial Paper Inc., as
documentation agent for the Lenders and Chase Securities
Inc., as arranger.
4.03** Form of Common Stock certificate.
10.01**** Amended and Restated Employment Agreement, dated as of June
12, 1998, between Auto and James Bazlen.
10.02+ Stock Option Agreement, dated November 1, 1996, between the
Company and James Bazlen.
10.03**** Amended and Restated Employment Agreement, dated as of June
12, 1998, between Auto and Maynard Jenkins.
10.04** Promissory Note of Maynard Jenkins, dated December 21, 1997.
10.05** Stock Pledge Agreement between the Company and Maynard
Jenkins, dated December 21, 1997.
10.06.1** Stock Acquisition Agreement, dated January 27, 1997, among
Maynard Jenkins, Auto and the Company.
10.06.2 First Amendment to Stock Acquisition Agreement.
10.07+ Stock Option Agreement, dated January 27, 1997, between the
Company and Maynard Jenkins.
10.08** Stock Option Agreement, dated February 1, 1998, between the
Company and Maynard Jenkins.
10.09** Stock Option Agreement, dated March 9, 1998, between the
Company and Maynard Jenkins.
10.10+ Restated 1996 Associate Stock Option Plan.
10.11+ Restated 1996 Executive Stock Option Plan.
10.12* 1996 General and Administrative Staff Incentive Compensation
Plan.
10.13**** CSK Auto Corporation Directors Stock Plan.
10.14 Restricted Stock Agreement, dated as of June 12, 1998,
between The Company and John F. Antioco.
10.15 Restricted Stock Agreement, dated as of October 7, 1998,
between the Company and Morton Godlas.
10.16* Amended and Restated Lease, dated October 23, 1989 (the
"Missouri Falls Lease"), between Auto and Missouri Falls
Associates Limited Partnership.
</TABLE>
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C>
10.17* First Amendment to the Missouri Falls Lease, dated November
22, 1991, between Auto and Missouri Falls Associates Limited
Partnership.
10.18* Amendment to Leases, dated as of October 30, 1996, by and
between Missouri Falls Associates Limited Partnership and
Auto.
10.19* Agreement for Management Advisory, Strategic Planning and
Consulting Services, dated October 30, 1996, between Auto
and Investcorp International Inc.
10.20* Stockholders' Agreement, dated October 30, 1996, by and
among the Initial Investcorp Group, Cantrade Trust Company
Limited in its capacity as trustee of The Carmel Trust, the
Company and Auto.
10.20.1** Form of Supplemental Stockholders' Agreement Signature Page.
10.20.2+ Amendment to the Stockholders' Agreement, dated June 12,
1998.
10.20.3 Letter Agreement re: Stockholders' Agreement.
10.21* Stock Purchase Agreement, dated September 29, 1996.
10.22** Senior Executive Stock Loan Plan.
10.23** Form of Stock Purchase Agreement.
21.01+ Subsidiary of the Company.
23.01+ Consent of PricewaterhouseCoopers LLP.
</TABLE>
- ---------------
* Incorporated herein by reference to CSK Auto, Inc.'s Registration Statement
on Form S-4 (File No. 333-22511).
** Incorporated herein by reference to our Registration Statement on Form S-1
(File No. 333-43211).
*** Incorporated herein by reference to our Annual Report on Form 10-K, filed
on May 4, 1998 (Reg. No. 001-13927).
**** Incorporated herein by reference to our Quarterly Report on Form 10-Q,
filed on September 11, 1998 (Reg. No. 001-13927).
+ Incorporated herein by reference to our Registration Statement on Form S-1
(File No. 333-67231).
<PAGE> 1
Exhibit 3.03
AMENDED AND RESTATED
BY - LAWS
-of-
CSK AUTO CORPORATION
(A Delaware Corporation)
(As adopted by the Board of Directors
of the Corporation as of April 27, 1999)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be at 1013 Centre Road, City of Wilmington, County of Castle,
State of Delaware, and the name of the registered agent in charge thereof shall
be The Prentice-Hall Corporation System, Inc.
Section 2. Other Offices. The Corporation may also have
offices at such other places within and without the State of Delaware as the
Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
STOCKHOLDER MEETINGS
Section 1. Annual Meeting. The annual meeting of stockholders
of the Corporation shall be held on the date and at the time fixed, from time to
time, by the Board of Directors, provided, that the first annual meeting shall
be held on a date within thirteen months after the organization of the
Corporation, and each successive annual meeting shall be held on a date within
thirteen months after the date of the preceding annual meeting, for the purpose
of electing directors and for the transaction of such other business as may
properly be brought before the meeting.
If the election of directors shall not be held on the day
designated for the annual meeting or at any adjournment thereof, the Board of
Directors shall cause such election to be held at a special meeting of
stockholders as soon thereafter as convenient. At such meeting the stockholders
may elect directors and transact other business with the same force and effect
as at an annual meeting duly called and held.
Section 2. Special Meeting. Special meetings of the
stockholders, for any purpose or purposes, shall be held whenever called by the
Board of Directors, either by written instrument or by the vote of a majority,
and shall be called whenever stockholders owning one-
<PAGE> 2
fourth of the capital stock issued and outstanding shall, in writing, make
application therefor to the President, stating the object of such meeting.
Section 3. Place and Time. Annual meetings and special
meetings shall be held at such place, within or without the State of Delaware,
and such time as the Board of Directors may, from time to time, fix. Whenever
the Board of Directors or the officer of the Corporation calling a meeting shall
fail to fix such place or time, the meeting shall be held at the registered
office of the Corporation in the State of Delaware at four o'clock in the
afternoon.
Section 4. Notice. Notice of all meetings shall be in writing
and shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called and to
which its business will be limited. The notice for a special meeting shall also
indicate that it is being issued by or at the direction of the person or persons
calling the meeting. A copy of the notice of any meeting shall be given,
personally or by mail, not less than 10 days nor more than 60 days before the
date of the meeting, to each stockholder entitled thereto. If mailed, such
notice shall be deemed given when deposited in a United States post office or
letter box with first class postage thereon prepaid, directed to the stockholder
at his record address or at such other address for the mailing of notices as he
may have furnished in writing to the Secretary of the Corporation. Notice of a
meeting need not be given to any stockholder who attends such meeting, in person
or by proxy, without protesting prior to the conclusion of the meeting the lack
of notice of such meeting, or who submits a signed waiver of notice in person or
by proxy, before or after the meeting.
Section 5. Adjourned Meeting. No notice need be given of any
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken, except that if the adjournment is for more than
30 days, or if a new record date is fixed for the adjourned meeting, notice of
the adjourned meeting shall be given to each stockholder of record on the new
record date entitled thereto. At any adjourned meeting, the Corporation may
transact any business which might have been transacted on the original date of
the meeting.
Section 6. Conduct of Meetings. Meetings of the stockholders
shall be presided over by the Chairman of the Board, if any, or, in his absence,
by the President, if present, or, in the absence of both, by a Vice President
or, if none of the foregoing is in office and present and acting, by a chairman
to be chosen by the stockholders. The Secretary of the Corporation, or in his
absence, an Assistant Secretary, shall act as secretary of every meeting, but if
neither the Secretary nor an Assistant Secretary is present, the chairman of the
meeting shall appoint a Secretary of the meeting. The order of business at all
meetings of the stockholders shall be determined by the chairman of the meeting.
Section 7. Appointment of Inspectors. The Board of Directors,
in advance of any meeting, may, but need not, appoint one or more inspectors,
who need not be stockholders, to act at the meeting or any adjournment thereof.
If an inspector or inspectors are not appointed, the person presiding at the
meeting may, but need not, appoint one or more inspectors. In case any person
who may be appointed as an inspector fails to appear or act, the vacancy may be
filled by appointment made at the meeting by the person presiding thereat. Each
inspector, if any, before
AMENDED AND RESTATED BY-LAWS 2
<PAGE> 3
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting or any stockholder, the inspector or inspectors, if any, shall make
a report in writing of any challenge, question or matter determined by him or
them and execute a certificate of any fact found by him or them.
Section 8. List of Stockholders. The Secretary or such other
officer of the Corporation having charge of the stock ledger of the Corporation
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city or other municipality or community where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
Section 9. Quorum. Except as otherwise provided by statute or
by the Certificate of Incorporation, the presence, in person or by proxy, of the
holders of a majority of the issued and outstanding shares of stock of the
Corporation entitled to vote thereat shall constitute a quorum at a meeting of
stockholders for the transaction of any business. When a quorum is once present
to organize a meeting, it is not broken by the subsequent withdrawal of any
stockholders. The stockholders present may adjourn a meeting despite the absence
of a quorum.
Section 10. Proxy Representation. Any stockholder may
authorize another person or persons to act for him by proxy in all matters in
which a stockholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or dissent
without a meeting. Proxies may be given by (a) the stockholder or the
stockholder's authorized representative executing a writing or causing his or
her signature to be affixed to a such a writing by any reasonable means,
including facsimile signature, or (b) by transmitting or authorizing the
transmission of a telegram, cablegram, or other means of electronic transmission
to the intended holder of the proxy or to a proxy solicitation firm, proxy
support service, or similar agent duly authorized by the intended proxy holder
to receive such transmission; provided that any such transmission must either
set forth or be accompanied by information from which it can be determined that
the transmission was authorized by the stockholder. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or the
transmission of a proxy may be substituted in lieu of the writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided
AMENDED AND RESTATED BY-LAWS 3
<PAGE> 4
that such copy, facsimile telecommunication or other reproduction shall be a
complete reproduction of the entire original writing or transmission.
A proxy shall be filed with the Secretary of the Corporation,
or the Corporation's duly appointed agent for the purpose of receiving proxies,
before or at the time of the meeting or the delivery of the consent in writing.
No proxy shall be voted or acted upon after three years from its date unless
such proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and, if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
proxy may be made irrevocable regardless of whether the interest with which it
is coupled is an interest in the stock itself or an interest in the Corporation
generally.
Section 11. Voting. Except as otherwise provided by statute or
by the Certificate of Incorporation, each holder of record of shares of stock of
the Corporation having voting rights shall be entitled at each meeting of
stockholders to one vote for each share of stock of the Corporation standing in
his name on the records of the Corporation on the date fixed as the record date
for the determination of the stockholders entitled to notice of and to vote at
such meeting. Except as otherwise provided herein, by statute, or by the
Certificate of Incorporation, any corporate action (including the election of
directors), to be taken by vote of the stockholders shall require the approval
of the holders of a majority of the issued and outstanding shares of stock of
the Corporation. No vote need be by ballot, but in case of a vote by ballot,
each ballot shall be signed by the voting stockholder or his proxy and shall
state the number of shares of stock voted.
Section 12. Stockholder Action Without Meeting. Any action
required by the General Corporation Law of the State of Delaware (the "DGCL") to
be taken at any annual or special meeting of stockholders, may be taken without
a meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
Section 13. Nominations and Stockholder Business.
(a) To be properly brought before an annual meeting of
stockholders, nominations of persons for election of the Board of Directors of
the Corporation and the proposal of business to be considered by the
stockholders at an annual meeting of stockholders must be either (i) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors (or any duly authorized committee thereof),
(ii) otherwise properly brought before the annual meeting by or at the direction
of the President, the Chairman of the Board of Directors or by vote of a
majority of the full Board of Directors, or (iii) otherwise brought before the
annual meeting by any stockholder of the Corporation who is a stockholder of
record on the date of the giving of the notice provided for in Section 4 of this
Article II, who is
AMENDED AND RESTATED BY-LAWS 4
<PAGE> 5
entitled to vote at the meeting and who complied with the notice
procedures set forth in this Section.
(b) For nominations or other business to be properly brought
before an annual meeting by a stockholder under this Section, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation and such business must be a proper subject for stockholder action
under the DGCL. To be timely, a stockholder's notice must be delivered to the
Secretary at the principal executive offices of the Corporation not less than 90
days nor more than 120 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that if there has been no prior annual
meeting or if the date of the annual meeting is advanced by more than 30 days or
delayed by more than 30 days from such anniversary date, then notice by the
stockholder to be timely must be delivered not later than the close of business
on the later of the 90th day prior to the annual meeting or the 10th day
following the day on which the date of the meeting is publicly announced. Such
stockholder's notice must set forth (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected); (ii)
as to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made; and (iii) as to the stockholder
giving the notice and the beneficial owners, if any, on whose behalf the
nomination or proposal is made (A) the name and address of such stockholder, as
they appear on the Corporation's books, and of such beneficial owner, (B) the
number of shares of the Corporation which are owned (beneficially or of record)
by such stockholder and such beneficial owner, (C) a description of all
arrangements or understandings between such stockholder and such beneficial
owner and any other person or persons (including their names) in connection with
the proposal of such business by such stockholder and any material interest of
such stockholder and of such beneficial owner in such business, and (D) a
representation that such stockholder or its agent or designee intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
(c) Notwithstanding anything in this Section to the contrary,
if the number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement specifying the size
of the increased Board of Directors made by the Corporation at least 90 days
prior to the first anniversary of the preceding year's annual meeting, then a
stockholder's notice required by this Section will also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it is delivered to the Secretary at the principal executive offices
of the Corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
Corporation.
AMENDED AND RESTATED BY-LAWS 5
<PAGE> 6
(d) Only such business may be conducted at a special meeting
of stockholders as has been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (i)
by or at the direction of the Board of Directors or (ii) by any stockholder of
the Corporation who is a stockholder of record at the time of giving the notice
required by this Section, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section. Nominations by
stockholders of persons for election to the Board of Directors may be made at
such a special meeting of Stockholders if the stockholder's notice required by
this Section is delivered to the Secretary at the principal executive offices of
the Corporation not earlier than the 120th day prior to such special meeting and
not later than the close of business on the later of the 90th day prior to such
special meeting or the 10th day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting.
(e) Only those persons who are nominated in accordance with
the procedures set forth in this Section will be eligible for election as
directors at any meeting of stockholders. Only business brought before the
meeting in accordance with the procedures set forth in this Section may be
conducted at a meeting of stockholders. The chairman of the meeting has the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Section and, if any proposed nomination or business is not in compliance
with this Section, to declare that such defective proposal shall be disregarded.
(f) For purposes of this Section, "public announcement" shall
include disclosure in a press release reported by the Dow Jones News Service,
Associated Press, Business Wire, PR Newswire or comparable national news service
or in a document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to the Exchange Act.
(g) Notwithstanding the foregoing provisions of this Section,
a stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section. Nothing in this Section shall be deemed to remove any
obligation of stockholders to comply with the requirements of Rule 14a-8 under
the Exchange Act with respect to proposals requested to be included in the
Corporation's proxy statement pursuant to said Rule 14a-8.
ARTICLE III
DIRECTORS
Section 1. Powers; Qualifications and Number. The property,
business and affairs of the Corporation shall be managed by or under the
direction of the Board of Directors of the Corporation, except as may be
otherwise provided by statute or the Certificate of Incorporation. A director
need not be a stockholder, a citizen of the United States, or a resident
AMENDED AND RESTATED BY-LAWS 6
<PAGE> 7
of the State of Delaware. The number of directors constituting the entire Board
of Directors shall, upon the effectiveness of these Amended and Restated
By-Laws, be set at twelve directors. The number of directors constituting the
entire Board of Directors may be increased of decreased from time to time by
resolution of the Board of Directors, or by the vote of the holders of a
majority of the issued and outstanding shares of stock of the Corporation
entitled to vote on such action. No decrease in the number of directors shall
became effective until the next annual meeting of stockholders if its
effectiveness would shorten the term of any incumbent director.
Section 2. Election; Term and Vacancies. Except as otherwise
provided by statute or by the Certificate of Incorporation, directors shall be
elected at each annual meeting of stockholders. Such directors and directors who
are elected in the interim prior to such a meeting to fill newly created
directorships shall hold office until the next annual meeting of stockholders
and until their respective successors have been elected and qualified or until
their earlier resignation or removal. In the interim prior to a meeting of
stockholders for the election of directors, newly created directorships and any
vacancies in the Board of Directors, including vacancies resulting from the
removal of directors, may be filled only by the vote of a majority of the
directors then in office.
Section 3. Resignation and Removal. Any director may resign at
any time by giving written notice of his resignation to the Board of Directors,
the Chairman of the Board, the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if no time is specified,
immediately upon receipt; unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective. Any or all of the
directors may be removed with or without cause by the stockholders at a special
meeting therefor and, except as otherwise provided by statute or by the
Certificate of Incorporation, may be removed for cause by the Board of
Directors.
Section 4. Executive Committee. Whenever there shall be more
than three directors, the Board of Directors may, by resolution adapted by a
majority of the directors that the Corporation would have if there were no
vacancies, designate from among its members three or more directors to
constitute an Executive Committee that, to the extent conferred by the
resolution designating it and except as otherwise provided by statute, shall
have and may exercise all the authority of the Board of Directors. Whenever the
Board of Directors is not in session or whenever a quorum fails to attend any
regular, stated or special meeting of the Board of Directors, such committee
shall advise and aid the officers of the Corporation in all matters concerning
the management of its business and affairs and generally, except as limited
above, perform such duties and exercise such powers as may be performed and
exercised by the Board of Directors from time to time, including the power to
authorize the seal of the Corporation to be affixed to all papers that may
require it. Unless the Board of Directors shall provide otherwise, a majority of
the members of the Executive Committee may fix the time and place of and shall
constitute a quorum for transaction of business at any meeting of such
committee, and the act of a majority of the members present at any meeting at
which a quorum is present shall be the act of such committee. The Executive
Committee shall keep written minutes of its proceedings, reporting such minutes
to the Board of Directors, and may make rules for the conduct of its business
and appoint any subcommittees and assistants it considers necessary. The Board
of
AMENDED AND RESTATED BY-LAWS 7
<PAGE> 8
Directors shall have the power at any time to fill vacancies in, change the
membership of or dissolve such committees each on a majority vote.
Section 5. Other Committees. The Board of Directors may, by
resolution adopted by a majority of the directors that the Corporation would
have if there were no vacancies, designate from among its members two or more
directors to constitute committees, other than the Executive Committee, which
committees, to the extent conferred by the resolutions designating such
committees and except as otherwise provided by statute, shall have and may
exercise the authority of the Board of Directors. Unless the Board of Directors
shall provide otherwise, a majority of the members of any such committee may fix
the time and place of its meetings and determine its action. The Board of
Directors shall have the power at any time to fill vacancies in, change the
membership of, or dissolve any such committee. Nothing herein shall be deemed to
prevent the Board of Directors from appointing committees consisting in whole or
in part of persons who are not directors of the Corporation, provided, however,
that no such committee shall have or may exercise any authority of the Board of
Directors.
Section 6. Compensation of Directors. The Board of Directors
shall have authority to fix the compensation of directors for services to the
Corporation in any capacity, including a fixed sum and reimbursement of expenses
for attendance at meetings of the Board of Directors and committees thereof.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation, its subsidiaries or affiliates in any capacity and
receiving compensation therefor.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. Place; Time; Call and Notice. Meetings of the Board
of Directors shall be held at such time and at such place, within or without the
State of Delaware, as the Board of Directors may from time to time fix or as
shall be specified in the notice of any such meeting, except that the first
meeting of a newly elected Board of Directors for the election or appointment of
officers and the transaction of other business shall be held as soon after its
election as the directors may conveniently assemble and, if possible, at the
place at which the annual meeting of stockholders which elected them was held.
No call or notice shall be required for regular or stated meetings for which the
time and place have been fixed, and no notice shall be required for any first
meeting of a newly elected Board of Directors which is held immediately
following an annual meeting of stockholders at the same place as such meeting.
If any day fixed for a regular or stated meeting shall be a legal holiday at the
place where the meeting is to be held, such meeting shall be held at the
scheduled hour on the next business day not a legal holiday. Special meetings
may be called by or at the direction of the Chairman of the Board, the President
or a majority of the directors of the Corporation, and notice of the time and
place thereof and of any first meeting of a newly elected Board of Directors
which is not held immediately following an annual meeting of stockholders at the
same place as such meeting shall be given by the Secretary of the Corporation to
each director by mail, depositing such notice in a sealed wrapper addressed to
such director in a United States post office or letter box, with first-
AMENDED AND RESTATED BY-LAWS 8
<PAGE> 9
class postage thereon prepaid, at least two days before the day on which such
meeting is to be held, or by telegraph, telecopier, cable or wireless addressed
to such director or delivered to him personally or by telephone at least 24
hours before the time at which such meeting is to be held. The notice of any
meeting need not specify the purpose thereof. Any requirement of furnishing a
notice shall be waived by any director who submits a signed waiver of notice
before or after the meeting or who attends the meeting without protesting, prior
thereto or at its commencement, that such meeting is not lawfully called or
convened.
Section 2. Quorum and Action. A majority of the directors
which Corporation would have if there were no vacancies shall constitute a
quorum, except that when a vacancy or vacancies prevent such a majority, a
majority of the directors then in office shall constitute a quorum provided such
majority shall constitute at least one-third of the directors which the
Corporation would have if there were no vacancies. A majority of the directors
present, whether or not a quorum, may adjourn a meeting to another time and
place. Notice of any such adjournment shall be given to any directors who were
not present and, unless announced at the meeting, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting originally scheduled. The vote
of a majority of the directors which the Corporation would have if there were no
vacancies shall be the act of the Board of Directors as to all matters.
Section 3. Conduct of Meetings. The Chairman of the Board, if
any and if present, shall preside at all meetings. Otherwise, the President or
any other director chosen by the Board of Directors shall preside. The Secretary
of the Corporation, if a director and present, shall act as secretary of the
meeting and keep the minutes thereof. Otherwise, a director appointed by the
chairman of the meeting shall act as secretary and keep the minutes thereof.
Section 4. Informal Action. Any member or members of the Board
of Directors or of any committee designated by the Board of Directors may
participate in a meeting of the Board of Directors or any such committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Any action required or permitted to be taken at any meeting of the
Board of Directors or any committee thereof may be taken without a meeting if
all members of the Board of Directors or such committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of the proceedings of the Board of Directors or such committee.
ARTICLE V
INDEMNIFICATION
Section 1. The Corporation 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, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, limited
AMENDED AND RESTATED BY-LAWS 9
<PAGE> 10
liability company or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf 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 the Corporation, and, with respect
to any criminal action or proceed, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
Section 2. The Corporation 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 or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, limited liability company or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him or on his behalf in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
Corporation and except that no indemnification shall 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
Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of the State
of Delaware or such other court shall deem proper.
Section 3. To the extent that any person described in Sections
1 and 2 of this Article V has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in said Sections, or in
defense or any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Section 4. Any indemnification under Sections 1 and 2 of this
Article V (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of any
person described in said Sections is proper in the circumstances because he has
met the applicable standard of conduct set forth in said Sections. Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders of the Corporation.
Section 5. Expenses (including attorneys' fees) incurred by
any person or on such person's behalf in defending any action, suit or
proceeding, if authorized by the Board of
AMENDED AND RESTATED BY-LAWS 10
<PAGE> 11
Directors in the manner provided for in Section 4 of this Article V, shall be
paid by the Corporation in advance of the final disposition of such Proceeding,
within 10 days after receipt by the Corporation of the written request of such
person for such advance. The Board of Directors may condition such advance upon
the receipt of the written undertaking of such person or on such person's behalf
to repay such amount if it shall ultimately be determined that the person is not
entitled to be indemnified by the Corporation. Such undertaking shall not be
required to be guarantied by any other person or collateralized, and shall be
accepted by the Corporation without regard to the financial ability of the
person providing such undertaking to make such repayment.
Section 6. The indemnification provided by this Article V
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any agreement, vote of stockholders or disinterested directors
or otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent of the Corporation,
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
ARTICLE VI
OFFICERS
Section 1. Number; Election and Vacancies. The Board of
Directors at its first meeting after the election of directors in each year
shall elect or appoint a President, a Secretary and a Treasurer and may elect or
appoint a Chairman of the Board and one or more Vice Presidents. The Board of
Directors may at any time and from time to time elect or appoint a Controller
and such Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers,
Assistant Controllers and other officers, agents and employees as it may deem
desirable. Any number of offices may be held by the same person. The election or
appointment of an officer shall not of itself create any contract rights. A
vacancy in any office may be filled for the unexpired term by the Board of
Directors at any meeting.
Section 2. Term of Office; Resignation and Removal. Unless
otherwise prescribed by the Board of Directors, each officer of the Corporation
shall hold office until the meeting of the Board Directors following the next
annual meeting of stockholders and until his successor has been elected and
qualified or until his earlier resignation or removal. Any officer may resign at
any time by giving written notice of his resignation to the Board of Directors,
the Chairman of the Board, if any, the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if no time is
specified, immediately upon receipt; unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. Any
officer may be removed by the Board of Directors with cause or without cause.
Section 3. Security. The Board of Directors may require any
officer, agent or employee of the Corporation to post a bond or give other
security for the faithful performance of his duties.
AMENDED AND RESTATED BY-LAWS 11
<PAGE> 12
Section 4. Chairman of the Board. The Chairman of the Board
shall be the chief executive officer of the Corporation and shall have the
general and active management of the business of the Corporation and general and
active supervision and direction over the other officers, agents and employees
and shall see that their duties are properly performed. He shall, if present,
preside at each meeting of the stockholders and of the Board and shall be an ex
officio member of all committees of the Board. He shall perform all duties
incident to the office of the Chairman of the Board or chief executive officer
and such other duties as may from time to time be assigned to him by the Board.
Section 5. President. The President shall be the chief
operating officer of the Corporation and in the absence or non-election of the
Chairman of the Board, the chief executive officer, and subject to the control
of the Board of Directors, shall direct the business and affairs of the
Corporation.
Section 6. Vice Presidents. Each Vice President shall have
such designation as the Board of Directors may determine and such designation as
the Board of Directors may determine and such powers and duties as the Board of
Directors or, subject to the control of the Board of Directors, as the President
may from time to time assign to him.
Section 7. Secretary. The Secretary shall, if present, act as
the secretary of and keep the minutes of all meetings and actions in writing of
the stockholders and, if a director, of the Board of Directors, and shall be
responsible for the giving of notice of all meetings of the stockholders and of
the Board of Directors. He shall be custodian of the seal of the Corporation,
which he shall affix to any instrument requiring it whose execution has been
authorized, and of the corporate records (except accounting records), and shall
have such other powers and duties as generally pertain to his office and as the
Board of Directors or, subject to the control of the Board of Directors, as the
Chairman of the Board, if any, or the President may from time to time assign to
him.
Section 8. Treasurer. The Treasurer, subject to the direction
of the Board of Directors, shall have charge of the funds, securities, receipts
and disbursements of the Corporation. He shall keep full and accurate accounts
of such receipts and disbursements, shall be responsible for deposits in and
withdrawals from the depositories of the Corporation, shall disburse the funds
of the Corporation as directed by the Board of Directors or, subject to the
control of the Board of Directors, the Chairman of the Board, if any, or the
President, shall render an account of the financial condition of the Corporation
and of his transactions as Treasurer whenever requested by the Board of
Directors, the Chairman of the Board, if any, or the President, and shall have
such other powers and duties as generally pertain to his office and as the Board
of Directors or, subject to the control of the Board of Directors, the Chairman
of the Board, if any, or the President may from time to time assign to him.
Section 9. Other Officers; Absence and Disability. The other
officers of the Corporation shall have such powers and duties as generally
pertain to their respective offices and as the Board of Directors or, subject to
the control of the Board of Directors, the Chairman of the Board, if any, or the
President may from time to time assign to them. The Assistant Vice
AMENDED AND RESTATED BY-LAWS 12
<PAGE> 13
Presidents, the Assistant Secretaries, the Assistant Treasurers and the
Assistant Controllers, if any, shall, in the order of their respective
seniorities, in case of the absence or disability of a Vice President, the
Secretary, the Treasurer or the Controller, respectively, perform the duties of
such officer and have such powers and other duties as the Board of Directors or
the Chairman of the Board, if any, or President may from time to time prescribe.
In case of the absence or disability of any officer of the Corporation and of
any person herein authorized to act in his place, the Board of Directors may
from time to time delegate the powers and duties of such officer to any other
officer or any person whom it may select.
Section 10. Compensation of Officers. The Board of Directors
shall have authority to fix the salary and other compensation, if any, of any
officer of the Corporation or to appoint a committee for such purpose. Nothing
herein contained shall be construed to preclude any officer from receiving a
salary or other compensation by reason of the fact that he is also a director of
the Corporation, but any such officer who is also a director shall not have any
vote in the determination of the salary or other compensation to be paid to him.
ARTICLE VII
CORPORATE RECORDS; BANK ACCOUNTS
Section 1. Form of Records. Any records maintained by the
Corporation in the regular course of its business, including its stock ledger,
books of account and minute books, may be kept on or be in the form of punch
cards, magnetic tape, photographs, microphotographs or any other information
storage device, provided that the records so kept can be converted into clearly
legible written form within a reasonable time. The Corporation shall so convert
any records so kept upon the request of any person entitled by statute to
inspect the same.
Section 2. Examination of Books by Stockholders. The books,
accounts and records of the Corporation may be kept at such place or places as
the Board of Directors may from time to time determine. The Board of Directors
shall determine whether and to what extent the books, accounts and records of
the Corporation, or any of them, shall be open to the inspection of
stockholders, and no stockholder shall have any right to inspect any book,
account or record of the Corporation except as provided by statute or by
resolution of the Board of Directors.
Section 3. Bank Accounts. The Board of Directors may from time
to time authorize the opening and maintenance of general and special bank
accounts with such banks, trust companies or other depositories as the Board of
Directors may designate or as may be designated by any officers of the
Corporation to whom such power of designation may from time to time be delegated
by the Board of Directors. The Board of Directors may make such special rules
and regulations with respect to such bank accounts, not inconsistent with the
provisions of these By-Laws, as it may deem expedient.
AMENDED AND RESTATED BY-LAWS 13
<PAGE> 14
ARTICLE VIII
SHARES OF STOCK
Section 1. Certificates Representing Stock. Every holder of
stock in the Corporation shall be entitled to have a certificate signed, or in
the name of the Corporation, by the Chairman of the Board of Directors, if any,
or by the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Corporation
certifying the number of shares owned by him in the Corporation. Any and all
signatures on any such certificate may be facsimiles. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the Corporation shall be authorized to issue more
than one class of stock or more than one series of any class of stock, and
whenever the Corporation shall issue any shares of its stock as partly paid
stock, the certificates representing shares of any such class or series or of
any such partly paid stock shall set forth thereon the statements prescribed by
the DGCL. Any restrictions on the transfer or registration of transfer of any
shares of stock of any class or series shall be noted conspicuously on the
certificate representing such shares.
The Corporation may issue a new certificate of stock in place
of any certificate theretofore issued by it, alleged to have been lost, stolen,
or destroyed, and the Board of Directors may require the owner of any lost,
stolen, or destroyed certificate, or his legal representative, to give the
Corporation a bond sufficient to indemnify the Corporation against any claim
that may be made against it on account of the alleged loss, theft, or
destruction of any such certificate or the issuance of any such new certificate.
Section 2. Stock Transfers. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
transfers or registration of transfers of shares of stock of the Corporation
shall be made only on the stock ledger of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the Corporation or with a transfer
agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares of stock properly endorsed and the payment of all
taxes due thereon.
Section 3. Record Date For Stockholders. For the purpose of
determining the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or the allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion, or exchange of stock
or for the purpose of any other lawful action, the directors may fix, in
advance, a record date, which shall not be more than sixty days nor less than
ten days before the date of such meeting, nor more than sixty days prior to any
other action. If no record date is fixed, the record date for determining
AMENDED AND RESTATED BY-LAWS 14
<PAGE> 15
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is expressed; and the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at any meeting of stockholders shall apply to any adjournment of the
meeting provided, however, that the Board of Directors may fix a new record date
for the adjourned meeting.
Section 4. Transfer Agents and Registrars. The Board of
Directors may appoint one or more transfer agents and one or more registrars,
whose respective duties shall be defined by the Board of Directors. The duties
of transfer agent and registrar may be combined. No certificate for shares of
stock shall be valid unless countersigned by a transfer agent, if the
Corporation has a transfer agent, or by a registrar, if the Corporation has a
registrar. The signature of a transfer agent or a registrar may be a facsimile.
ARTICLE IX
CORPORATE SEAL
The corporate seal, if any, shall be in such form as the Board
of Directors shall prescribe. The corporate seal on any corporate bond or other
obligation for the payment of money may be a facsimile, engraved or printed.
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall be the calendar year
or such other fiscal year as the Board of Directors may from time to time fix.
ARTICLE XI
VOTING OF SHARES OF STOCK IN OTHER CORPORATIONS
Shares of stock in other corporations which are held by the
Corporation shall be voted by the Chairman or President (or in their absence,
Vice President) of the Corporation, or by a proxy or proxies appointed by one of
them, provided, however, that the Board of Directors may in its discretion
appoint some other person to vote such shares of stock.
AMENDED AND RESTATED BY-LAWS 15
<PAGE> 16
ARTICLE XII
AMENDMENT OF BY-LAWS
The power to amend, alter and repeal these By-Laws and to
adopt new By-Laws shall be vested in the Board of Directors, provided that the
Board of Directors may delegate such power, in whole or in part, to the
stockholders, and further provided that any By-Laws which provides for the
election of directors by classes for staggered terms shall be adopted by the
stockholders.
AMENDED AND RESTATED BY-LAWS 16
<PAGE> 1
Exhibit 10.06.2
FIRST AMENDMENT TO
STOCK ACQUISITION AGREEMENT
This First Amendment to the Stock Acquisition Agreement (this "Amendment") is
made as of the 9th day of December, 1998, by and among CSK Auto Corporation, a
Delaware corporation formerly known as CSK Group, Ltd. ("CSK"), Investcorp CSK
Holdings L.P., a Cayman Islands corporation ("CSK Holdings"), and Maynard
Jenkins ("Jenkins"), and amends the Stock Acquisition Agreement by and among
CSK, CSK Holdings and Jenkins, dated as of January 27, 1997 (executed on
December 24, 1997) (the "Stock Agreement").
RECITALS
A. Pursuant to the Stock Agreement, CSK sold to Jenkins 4,857 shares of Class C
Stock of CSK which have since been converted into 83,078 shares of Common Stock
of CSK (the "Shares").
B. On December 21, 1997, CSK loaned $441,500 to Jenkins pursuant to the
promissory note (the "Promissory Note"). In order to secure the Promissory Note,
Jenkins pledged the Shares to CSK pursuant to a Stock Pledge Agreement (the
"Pledge Agreement"), dated as of December 21, 1997 by and between Maynard L.
Jenkins and CSK.
C. The parties desire to amend the Stock Agreement so that Jenkins can sell the
Shares in the currently contemplated underwritten public offering of CSK's
Common Stock, as more fully set forth below. CSK and CSK Holdings' consent to
sell the Shares will be conditioned upon repayment of the Promissory Note in
full with the proceeds of the sale.
NOW THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, the undersigned hereby agree as follows:
1. Notwithstanding any provision of the Stock Agreement to the
contrary, at the Closing of the sale of Common Stock of CSK contemplated in
CSK's Registration Statement on Form S-1 (Registration Number 333-67231),
Jenkins shall be permitted to sell to the underwriters named therein the Shares,
free and clear of all restrictions and repurchase rights contained in the Stock
Agreement, including, without limitation, any transfer or vesting requirements
contained in the Stock Agreement. The Stock Agreement shall continue in effect
until the Shares have been sold pursuant to such offering.
2. Concurrently with the Sale, Jenkins shall pay to CSK all amounts
owing under the Promissory Note. Upon payment in full, CSK shall deliver the
Promissory Note to Jenkins, marked cancelled, and the Pledge Agreement, by its
terms, shall be of no further force or effect.
[INTENTIONALLY BLANK -- SIGNATURES FOLLOW]
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed as
of the date first above written.
CSK AUTO CORPORATION INVESTCORP CSK HOLDINGS L.P.
By: /s/ James G. Bazlen By: /s/ Sydney J. Coleman
----------------------------- -----------------------------
Name: James G. Bazlen Name: Sydney J. Coleman
Title: President and Chief Operating Title: The Director Limited, for Gila
Officer Limited, General Partner
MAYNARD JENKINS
/s/ Maynard Jenkins
- -----------------------------
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<PAGE> 1
Exhibit 10.14
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement (this "Agreement") is made and entered
into as of June 12, 1998 (the "Effective Date"), by and between CSK Auto
Corporation, a Delaware corporation (the "Company"), and John F.
Antioco (the "Participant").
WHEREAS, the Participant is a director of the Company;
WHEREAS, the Company has, subject to stockholder approval, established
the CSK Auto Corporation Directors Stock Plan (the "Plan") whereby the Company
may issue restricted shares of the Company's common stock, par value .01 per
share ("Common Stock"), to certain of the directors of the Company; and
WHEREAS, in order to attract, motivate and retain the services of the
Participant, the Company is willing to issue restricted shares of Common Stock
to the Participant on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, the Company hereby agrees to issue Participant certain
restricted shares of Common Stock, and Participant hereby accepts such shares,
on the terms and conditions hereinafter set forth.
1. ESTABLISHMENT OF PLAN.
The shares of Common Stock issuable to the Participant pursuant to this
Agreement will be issued pursuant to the authority granted under the Plan, and
are subject to all the terms and conditions of the Plan, as the same may be
amended from time to time. The interpretation and construction by the committee
administering the Plan of the Plan, this Agreement and such rules and
regulations as may be adopted by such committee for the purpose of administering
the Plan shall be final and binding upon the Participant. Until the shares of
Common Stock issuable to the Participant pursuant to this Agreement shall vest
or be forfeited, the Company shall, upon written request therefor, send a copy
of the Plan, in its then current form, to the Participant.
The Plan shall become effective upon its approval by a majority of the
outstanding shares of the Company present, or represented by proxy, and entitled
to vote at the Company's 1999 annual meeting of stockholders to take place
following the conclusion of its 1998 fiscal year ("Stockholder Approval"). The
effectiveness of this Agreement shall be contingent on such approval and, if
such approval is not obtained, shall be null and of no effect.
2. GRANT OF AWARD.
Pursuant to the terms of the Plan, One Thousand Fifty-Eight (1,058)
shares (the "Shares") of restricted Common Stock will be issued in the name of
the Participant and transferred to the Participant. The Shares will be
restricted by being subject to vesting and non-transferability as hereafter
provided in this Agreement and shall be subject to such limitations on transfer
as are contained in the Plan, the federal and state securities laws applicable
to the Shares or any other limitations on transferability as may be imposed by
the Company.
<PAGE> 2
3. RISK OF FORFEITURE.
The Shares will be subject to a substantial risk of forfeiture. The
Participant must continue to serve as a director of the Company on the Vesting
Date set forth below in order to vest in the ownership of the Shares. If the
Participant's directorship of the Company is terminated for any reason other
than (i) death or disability, or (ii) an Approved Sale (as defined) of the
Company, in either case prior to the Vesting Date, the Shares shall revert to
the Company.
4. RESTRICTIONS.
Until the Participant vests in the Shares, the Shares may not be sold,
assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in
any manner.
5. VESTING.
5.1 General. Fifty percent of the Shares shall vest upon the six month
anniversary of the Effective Date (the "Initial Vesting Date"), on the condition
that the Participant remains as a director of the Company on the Initial Vesting
Date, and the remaining fifty percent shall vest upon the earlier of (i) the one
year anniversary of the Effective Date, or (ii) the first date following the
Effective Date on which a duly called meeting (whether annual or special) of the
stockholders of the Company is held for the purpose of electing directors of the
Company at which directors are elected (the "Final Vesting Date" and together
with the Initial Vesting Date, the "Vesting Dates"), on the condition that the
Participant remains as a director of the Company on the Final Vesting Date.
5.2 Death or Disability. The Shares shall vest in their entirety upon
the Participant's death or disability. For this purpose, the term "disability"
shall mean an illness, incapacity or disability of a nature which prevents the
Participant from fulfilling his duties as a director of the Company for an
aggregate of six (6) calendar months during the period between the Effective
Date and the Final Vesting Date. The Company, at its option and expense, is
entitled to retain a physician reasonably acceptable to the Participant to
confirm the existence of such illness, incapacity or disability, and the
determination of such physician shall be binding upon the Company and the
Participant.
5.3 Approved Sale of the Company. The Shares shall vest in their
entirety upon the closing of an Approved Sale that occurs prior to the Final
Vesting Date if, immediately prior to such closing, Participant is serving as a
director of the Company. "Approved Sale" means a transaction or a series of
related transactions with an acquiror which had not previously been a
stockholder of the Company (other than as a result of purchasing shares in the
public market) which results in a bona fide, unaffiliated change of beneficial
ownership of (a) 80% of the Company's common equity securities or (b) all or
substantially all of its assets, whether pursuant to the sale of the stock or
assets of the Company or any of its subsidiaries, or a merger or consolidation
involving the Company or any of its subsidiaries.
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<PAGE> 3
6. ISSUANCE OF CERTIFICATES.
Promptly following the Stockholder Approval, the Company will issue and
deliver to the Participant, in the name of the Participant, a certificate
representing ownership of the Shares. The certificate representing the Shares
shall contain the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ISSUED PURSUANT TO A
RESTRICTED STOCK AGREEMENT, DATED AS OF JUNE 12, 1998 (THE
"AGREEMENT"), BY AND BETWEEN CSK AUTO CORPORATION AND THE PERSON IN
WHOSE NAME THESE SECURITIES ARE REGISTERED. THE TERMS AND CONDITIONS OF
THE AGREEMENT SUBJECT THESE SECURITIES TO A SUBSTANTIAL RISK OF
FORFEITURE AND TO RESTRICTIONS ON TRANSFERABILITY.
If the Participant is serving as a director of the Company on any Vesting Date,
the Participant may surrender the certificate representing ownership of the
Shares to the Company for reissuance of a certificate representing the vested
Shares, which certificate does not contain the foregoing legend, and a
certificate representing unvested Shares, if any, which certificate shall
contain the foregoing legend.
7. VOTING; DIVIDENDS; CERTAIN CORPORATE TRANSACTIONS.
The Participant shall not be entitled to exercise any voting rights
with respect to the Shares or to receive any dividends (other than a stock
dividend) paid with respect thereto, until the Shares have vested. In the event
that the outstanding securities of any class then comprising the Shares are
increased, decreased or exchanged for or converted into cash, property and/or a
different number or kind of securities, or cash, property and/or securities are
distributed in respect of such outstanding securities, in either case as a
result of a reorganization, merger, consolidation, recapitalization,
reclassification, dividend (other than a regular cash dividend) or other
distribution, stock split, reverse stock split or the like, then, unless the
committee administering the Plan shall determine otherwise, the terms "Common
Stock" or "Shares" shall, from and after the date of such event, include such
cash, property and/or securities so distributed in respect of the Shares, or
into or for which the Shares are so increased, decreased, exchanged or
converted.
8. SECTION 83(B) ELECTION.
The Participant understands and agrees that the vesting of the
Participant in the Shares shall constitute compensation income arising from
services performed by the Participant for the Company. The Participant
understands that the taxable income recognized by the Participant as a result of
the award of Shares hereunder, and the withholding liability and required date
of withholding with respect thereto, if any, will be affected by a decision by
the Participant to make an election pursuant to Section 83(b) of the Internal
Revenue Code of 1986, as amended (an "83(b) Election"). The Participant
understands and agrees that the Participant will have the sole responsibility
for determining whether to make an 83(b) Election with respect to the Shares,
and for properly making such election and filing the election with the relevant
taxing authorities on a
3
<PAGE> 4
timely basis. The Participant will not rely on the Company or any of its
officers, accountants, attorneys or other agents for any advice in connection
with the decision whether to make, or procedures for making, the 83(b) Election,
and acknowledges that the Company has urged the Participant to consult with the
Participant's own tax advisor with respect to the desirability of and procedures
for making an 83(b) Election with respect to the Shares, including when the
election should be made. The Participant agrees to submit to the Company a copy
of any 83(b) Election with respect to the Shares immediately upon filing such
election with the relevant taxing authority.
9. PAYMENTS TO COMPANY.
By the execution of this Agreement, the Participant agrees to pay to
the Company the amount of federal, state and local taxes that the Company is
required to withhold and remit to the taxing authorities applicable to the
Participant as a result of the transactions contemplated by this Agreement
(collectively, "Taxes"). The Participant shall pay to the Company an amount
equal to the Taxes the Company is required to withhold and remit as calculated
by the Company in accordance with the rules and regulations of applicable taxing
authorities governing the calculation of such withholding. The Participant shall
make such withholding payment to the Company on the Vesting Date or upon the
Participant making an 83(b) Election. If the Participant fails or refuses to
make such payment to the Company on its due date, the Participant hereby
authorizes the Company, in addition to any of its other remedies, to withhold
from any other compensation or payments due by the Company to the Participant an
amount sufficient to pay such withholding plus interest as hereafter provided
until such withholding and interest is paid in full. Any delinquent payments
made by the Participant to the Company shall bear interest at the lesser of the
maximum interest rate permitted by law or one and one-half percent (1-1/2%) per
calendar month, or portion thereof, compounded monthly, until the entire
withholding is paid in full.
10. MISCELLANEOUS.
10.1 Notice. Any notice required or permitted to be given hereunder
shall be deemed sufficiently given if sent by registered or certified mail,
postage prepaid, addressed to the addressee at his or its address last provided
the sender in writing by the addressee for purposes of receiving notices
hereunder or, unless or until such address shall be so furnished, to the address
indicated opposite his or its signature to this Agreement. Each party may also
provide notice by sending the other party a facsimile at a number provided by
such other party.
10.2 No Right to Employment. This Agreement is not an employment
agreement and shall not confer on the Participant any right to be retained in
the employment of the Company or any of its successors or affiliates.
10.3 Unfunded Benefits. Nothing in this Agreement shall be construed as
requiring the Company to segregate, earmark, purchase or otherwise set aside or
fund any investment or contract to secure its obligations under this Agreement.
The rights of the Participant hereunder shall be those of a general unsecured
creditor of the Company.
4
<PAGE> 5
10.4 No Trust. Nothing contained in this Agreement or any action taken
pursuant to the provisions of this Agreement shall create or be construed to
create any irrevocable trust of any kind, fiduciary relationship between the
parties.
10.5 Benefits Nontransferable. The rights of the Participant to the
issuance of the Shares as provided herein shall not be assigned, transferred,
pledged or encumbered, and any attempted assignment shall be void. If any
creditor, trustee in bankruptcy or other person attempts to attach or otherwise
acquire any of the Participant's interest under this Agreement, the Participant
shall immediately forfeit all rights under this Agreement.
10.6 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Arizona and all
questions relating to the validity and performance hereof and remedies hereunder
shall be determined in accordance with such law.
10.7 Modification and No Waiver of Breach. No waiver or modification of
this Agreement shall be binding unless it is in writing signed by the parties
hereto. No waiver by a party of a breach hereof by the other party shall be
deemed to constitute a waiver of a future breach, whether of a similar or
dissimilar nature, except to the extent specifically provided in any written
waiver under this Section 10.7.
10.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same agreement.
10.9 Captions. The captions used herein are for ease of reference only
and shall not define or limit the provisions hereof.
10.10 Entire Agreement. This Agreement together with any agreement,
plans or other documents implementing the terms of this Agreement constitute the
entire agreement between the parties hereto relating to the matters encompassed
hereby and supersede any prior oral or written agreements.
10.11 Arbitration. Any dispute arising under this Agreement shall be
resolved by binding arbitration conducted under the auspices and pursuant to the
rules of the American Arbitration Association and held in Phoenix, Arizona, or
such other place as the parties may mutually agree. Each party shall bear its or
his own costs and expenses in any such arbitration and one-half of the
arbitrator's fees and expenses.
5
<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first written above.
CSK AUTO CORPORATION,
a Delaware corporation
By: /s/ Maynard Jenkins
Name: Maynard Jenkins
Title: Chief Executive Officer
Address for Notices:
645 E. Missouri Avenue
Phoenix, AZ 85012
Attention: General Counsel
With a copy to:
Investcorp International Inc.
280 Park Avenue, 37th Floor West
New York, NY 10017
Attention: Christopher Stadler
Participant /s/ John F. Antioco
John F. Antioco
Address for Notices:
Blockbuster Entertainment Group
1201 East Elm Street, 32nd Fl.
Dallas, TX 75270
6
<PAGE> 1
Exhibit 10.15
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement (this "Agreement") is made and entered
into as of October 7, 1998 (the "Effective Date"), by and between CSK Auto
Corporation, a Delaware corporation (the "Company"), and Morton Godlas (the
"Participant").
WHEREAS, the Participant is a director of the Company;
WHEREAS, the Company has, subject to stockholder approval, established
the CSK Auto Corporation Directors Stock Plan (the "Plan") whereby the Company
may issue restricted shares of the Company's common stock, par value .01 per
share ("Common Stock"), to certain of the directors of the Company; and
WHEREAS, in order to attract, motivate and retain the services of the
Participant, the Company is willing to issue restricted shares of Common Stock
to the Participant on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, the Company hereby agrees to issue Participant certain
restricted shares of Common Stock, and Participant hereby accepts such shares,
on the terms and conditions hereinafter set forth.
1. ESTABLISHMENT OF PLAN.
The shares of Common Stock issuable to the Participant pursuant to this
Agreement will be issued pursuant to the authority granted under the Plan, and
are subject to all the terms and conditions of the Plan, as the same may be
amended from time to time. The interpretation and construction by the committee
administering the Plan of the Plan, this Agreement and such rules and
regulations as may be adopted by such committee for the purpose of administering
the Plan shall be final and binding upon the Participant. Until the shares of
Common Stock issuable to the Participant pursuant to this Agreement shall vest
or be forfeited, the Company shall, upon written request therefor, send a copy
of the Plan, in its then current form, to the Participant.
The Plan shall become effective upon its approval by a majority of the
outstanding shares of the Company present, or represented by proxy, and entitled
to vote at the Company's 1999 annual meeting of stockholders to take place
following the conclusion of its 1998 fiscal year ("Stockholder Approval"). The
effectiveness of this Agreement shall be contingent on such approval and, if
such approval is not obtained, shall be null and of no effect.
2. GRANT OF AWARD.
Pursuant to the terms of the Plan, Four Hundred Fifty-Eight (458)
shares (the "Shares") of restricted Common Stock will be issued in the name of
the Participant and transferred to the Participant. The Shares will be
restricted by being subject to vesting and non-transferability as hereafter
provided in this Agreement and shall be subject to such limitations on transfer
as are contained in the Plan, the federal and state securities laws applicable
to the Shares or any other limitations on transferability as may be imposed by
the Company.
<PAGE> 2
3. RISK OF FORFEITURE.
The Shares will be subject to a substantial risk of forfeiture. The
Participant must continue to serve as a director of the Company on the Vesting
Dates set forth below in order to vest in the ownership of the Shares. If the
Participant's directorship of the Company is terminated for any reason other
than (i) death or disability, or (ii) an Approved Sale (as defined) of the
Company, in either case prior to the Vesting Date, the Shares shall revert to
the Company.
4. RESTRICTIONS.
Until the Participant vests in the Shares, the Shares may not be sold,
assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in
any manner.
5. VESTING.
5.1 General. Fifty percent of the Shares shall vest upon the six month
anniversary of the Effective Date (the "Initial Vesting Date"), on the condition
that the Participant remains as a director of the Company on the Initial Vesting
Date, and the remaining fifty percent shall vest upon the earlier of (i) the one
year anniversary of the Effective Date, or (ii) the first date following the
Effective Date on which a duly called meeting (whether annual or special) of the
stockholders of the Company is held for the purpose of electing directors of the
Company at which directors are elected (the "Final Vesting Date" and together
with the Initial Vesting Date, the "Vesting Dates"), on the condition that the
Participant remains as a director of the Company on the Final Vesting Date.
5.2 Death or Disability. The Shares shall vest in their entirety upon
the Participant's death or disability. For this purpose, the term "disability"
shall mean an illness, incapacity or disability of a nature which prevents the
Participant from fulfilling his duties as a director of the Company for an
aggregate of six (6) calendar months during the period between the Effective
Date and the Final Vesting Date. The Company, at its option and expense, is
entitled to retain a physician reasonably acceptable to the Participant to
confirm the existence of such illness, incapacity or disability, and the
determination of such physician shall be binding upon the Company and the
Participant.
5.3 Approved Sale of the Company. The Shares shall vest in their
entirety upon the closing of an Approved Sale that occurs prior to the Final
Vesting Date if, immediately prior to such closing, Participant is serving as a
director of the Company. "Approved Sale" means a transaction or a series of
related transactions with an acquiror which had not previously been a
stockholder of the Company (other than as a result of purchasing shares in the
public market) which results in a bona fide, unaffiliated change of beneficial
ownership of (a) 80% of the Company's common equity securities or (b) all or
substantially all of its assets, whether pursuant to the sale of the stock or
assets of the Company or any of its subsidiaries, or a merger or consolidation
involving the Company or any of its subsidiaries.
2
<PAGE> 3
6. ISSUANCE OF CERTIFICATES.
Promptly following the Stockholder Approval, the Company will issue and
deliver to the Participant, in the name of the Participant, a certificate
representing ownership of the Shares. The certificate representing the Shares
shall contain the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ISSUED PURSUANT TO A
RESTRICTED STOCK AGREEMENT, DATED AS OF OCTOBER 7, 1998 (THE
"AGREEMENT"), BY AND BETWEEN CSK AUTO CORPORATION AND THE PERSON IN
WHOSE NAME THESE SECURITIES ARE REGISTERED. THE TERMS AND CONDITIONS OF
THE AGREEMENT SUBJECT THESE SECURITIES TO A SUBSTANTIAL RISK OF
FORFEITURE AND TO RESTRICTIONS ON TRANSFERABILITY.
If the Participant is serving as a director of the Company on any Vesting Date,
the Participant may surrender the certificate representing ownership of the
Shares to the Company for reissuance of a certificate representing the vested
Shares, which certificate does not contain the foregoing legend, and a
certificate representing unvested Shares, if any, which certificate shall
contain the foregoing legend.
7. VOTING; DIVIDENDS; CERTAIN CORPORATE TRANSACTIONS.
The Participant shall not be entitled to exercise any voting rights
with respect to the Shares or to receive any dividends (other than a stock
dividend) paid with respect thereto, until the Shares have vested. In the event
that the outstanding securities of any class then comprising the Shares are
increased, decreased or exchanged for or converted into cash, property and/or a
different number or kind of securities, or cash, property and/or securities are
distributed in respect of such outstanding securities, in either case as a
result of a reorganization, merger, consolidation, recapitalization,
reclassification, dividend (other than a regular cash dividend) or other
distribution, stock split, reverse stock split or the like, then, unless the
committee administering the Plan shall determine otherwise, the terms "Common
Stock" or "Shares" shall, from and after the date of such event, include such
cash, property and/or securities so distributed in respect of the Shares, or
into or for which the Shares are so increased, decreased, exchanged or
converted.
8. SECTION 83(B) ELECTION.
The Participant understands and agrees that the vesting of the
Participant in the Shares shall constitute compensation income arising from
services performed by the Participant for the Company. The Participant
understands that the taxable income recognized by the Participant as a result of
the award of Shares hereunder, and the withholding liability and required date
of withholding with respect thereto, if any, will be affected by a decision by
the Participant to make an election pursuant to Section 83(b) of the Internal
Revenue Code of 1986, as amended (an "83(b) Election"). The Participant
understands and agrees that the Participant will have the sole responsibility
for determining whether to make an 83(b) Election with respect to the Shares,
and for properly making such election and filing the election with the relevant
taxing authorities on a
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<PAGE> 4
timely basis. The Participant will not rely on the Company or any of its
officers, accountants, attorneys or other agents for any advice in connection
with the decision whether to make, or procedures for making, the 83(b) Election,
and acknowledges that the Company has urged the Participant to consult with the
Participant's own tax advisor with respect to the desirability of and procedures
for making an 83(b) Election with respect to the Shares, including when the
election should be made. The Participant agrees to submit to the Company a copy
of any 83(b) Election with respect to the Shares immediately upon filing such
election with the relevant taxing authority.
9. PAYMENTS TO COMPANY.
By the execution of this Agreement, the Participant agrees to pay to
the Company the amount of federal, state and local taxes that the Company is
required to withhold and remit to the taxing authorities applicable to the
Participant as a result of the transactions contemplated by this Agreement
(collectively, "Taxes"). The Participant shall pay to the Company an amount
equal to the Taxes the Company is required to withhold and remit as calculated
by the Company in accordance with the rules and regulations of applicable taxing
authorities governing the calculation of such withholding. The Participant shall
make such withholding payment to the Company on the Vesting Date or upon the
Participant making an 83(b) Election. If the Participant fails or refuses to
make such payment to the Company on its due date, the Participant hereby
authorizes the Company, in addition to any of its other remedies, to withhold
from any other compensation or payments due by the Company to the Participant an
amount sufficient to pay such withholding plus interest as hereafter provided
until such withholding and interest is paid in full. Any delinquent payments
made by the Participant to the Company shall bear interest at the lesser of the
maximum interest rate permitted by law or one and one-half percent (1-1/2%) per
calendar month, or portion thereof, compounded monthly, until the entire
withholding is paid in full.
10. MISCELLANEOUS.
10.1 Notice. Any notice required or permitted to be given hereunder
shall be deemed sufficiently given if sent by registered or certified mail,
postage prepaid, addressed to the addressee at his or its address last provided
the sender in writing by the addressee for purposes of receiving notices
hereunder or, unless or until such address shall be so furnished, to the address
indicated opposite his or its signature to this Agreement. Each party may also
provide notice by sending the other party a facsimile at a number provided by
such other party.
10.2 No Right to Employment. This Agreement is not an employment
agreement and shall not confer on the Participant any right to be retained in
the employment of the Company or any of its successors or affiliates.
10.3 Unfunded Benefits. Nothing in this Agreement shall be construed as
requiring the Company to segregate, earmark, purchase or otherwise set aside or
fund any investment or contract to secure its obligations under this Agreement.
The rights of the Participant hereunder shall be those of a general unsecured
creditor of the Company.
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<PAGE> 5
10.4 No Trust. Nothing contained in this Agreement or any action taken
pursuant to the provisions of this Agreement shall create or be construed to
create any irrevocable trust of any kind, fiduciary relationship between the
parties.
10.5 Benefits Nontransferable. The rights of the Participant to the
issuance of the Shares as provided herein shall not be assigned, transferred,
pledged or encumbered, and any attempted assignment shall be void. If any
creditor, trustee in bankruptcy or other person attempts to attach or otherwise
acquire any of the Participant's interest under this Agreement, the Participant
shall immediately forfeit all rights under this Agreement.
10.6 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Arizona and all
questions relating to the validity and performance hereof and remedies hereunder
shall be determined in accordance with such law.
10.7 Modification and No Waiver of Breach. No waiver or modification of
this Agreement shall be binding unless it is in writing signed by the parties
hereto. No waiver by a party of a breach hereof by the other party shall be
deemed to constitute a waiver of a future breach, whether of a similar or
dissimilar nature, except to the extent specifically provided in any written
waiver under this Section 10.7.
10.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same agreement.
10.9 Captions. The captions used herein are for ease of reference only
and shall not define or limit the provisions hereof.
10.10 Entire Agreement. This Agreement together with any agreement,
plans or other documents implementing the terms of this Agreement constitute the
entire agreement between the parties hereto relating to the matters encompassed
hereby and supersede any prior oral or written agreements.
10.11 Arbitration. Any dispute arising under this Agreement shall be
resolved by binding arbitration conducted under the auspices and pursuant to the
rules of the American Arbitration Association and held in Phoenix, Arizona, or
such other place as the parties may mutually agree. Each party shall bear its or
his own costs and expenses in any such arbitration and one-half of the
arbitrator's fees and expenses.
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first written above.
CSK AUTO CORPORATION,
a Delaware corporation
By: /s/ Maynard Jenkins
Name: Maynard Jenkins
Title: Chief Executive Officer
Address for Notices:
645 E. Missouri Avenue
Phoenix, AZ 85012
Attention: General Counsel
With a copy to:
Investcorp International Inc.
280 Park Avenue, 37th Floor West
New York, NY 10017
Attention: Christopher Stadler
Participant /s/ Morton Godlas
Morton Godlas
Address for Notices:
11502 Baskerville Road
Los Alamitos, CA 90720
6
<PAGE> 1
Exhibit 10.20.3
December 8, 1998
BALLET LIMITED EQUITY CSKA LIMITED SOUTH BAY LIMITED
DENARY LIMITED EQUITY CSKB LIMITED NEW CSK EQUITY LIMITED
GLEAM LIMITED AUTO EQUITY LIMITED CHASE BANK (C.I.)
HIGHLANDS LIMITED AUTO PARTS LIMITED NOMINEES LIMITED
NOBLE LIMITED AUTO INVESTMENTS THE JAB TRUST
OUTRIGGER LIMITED LIMITED James G. Bazlen
QUILL LIMITED CSK INVESTMENTS LIMITED Maynard Jenkins
RADIAL LIMITED CSK EQUITY LIMITED CHILTERN TRUSTEES
SHORELINE LIMITED CSK INTERNATIONAL LIMITED (as trustee for
ZINNIA LIMITED LIMITED the Carmel Trust)
INVESTCORP INVESTMENTS EQUITY CSKC LIMITED TRANSATLANTIC FINANCE
EQUITY LIMITED INVESTCORP CSK HOLDINGS LTD.
L.P.
Re: Stockholders' Agreement, dated October 30, 1996, by and among CSK
Auto Corporation (the "Company") and the stockholders signatory
thereto, as amended (the "Stockholders Agreement").
Ladies and Gentlemen:
On November 13, 1998, the Company filed a Registration Statement on
Form S-1 (the "Registration Statement") covering the public offering of up to
8,050,000 shares (including the underwriters' overallotment option) of the
Company's common stock, par value $0.01 (the "Common Stock"). Capitalized terms
used but not defined herein have the meanings given to them in the Stockholders
Agreement.
Each of you has certain registration rights with respect to shares of
the capital stock of the Company. By signing this letter agreement, each of you
waives (a) any requirement of notice under Sections 9.1 and 9.2 of the
Stockholders Agreement with respect to the registration of shares of Common
Stock contemplated by the Registration Statement or a Registration Statement
filed under Rule 462(b) under the Securities Act of 1933, as amended, provided
you are permitted to include in such Registration Statement a number shares of
Common Stock which is not, without your written consent, materially different
(other than to allow for the exercise of the underwriters' overallotment option
or any other increase in the number of shares included in the offering which is
pro rata among all stockholders other than Messrs. Jenkins and Bazlen and the
JAB Trust) from the number of shares of Common Stock disclosed as being sold by
you in the "Principal and Selling Stockholders" section of Amendment No. 1 to
the Registration Statement, and (b) the right to select the managing underwriter
with respect to such offering, provided such managing underwriter is Donaldson,
Lufkin & Jenrette Securities Corporation.
In order to commence the public offering process, one of you was
required to "demand" a registration of shares to commence this process. By
signing this letter agreement, the Investcorp
<PAGE> 2
Group acknowledges that one of its members has made such a demand in
consideration of the agreement of the members of the Carmel Group as follows:
The members of the Carmel Group shall not make more than three
requests, in the aggregate, that the Company register Registrable Stock
pursuant to Section 9.1(b) of the Stockholders Agreement (a "Demand
Registration Request"), except with the written consent of a majority
of the members of the Investcorp Group. A member of the Carmel Group
shall exercise, or be deemed to have exercised, one of its four Demand
Registration Requests the next time both the Investcorp Group and the
Carmel Group participate in a registered offering of Registrable Stock
through the exercise of a Demand Registration Request, after which the
restriction contained in the immediately preceding sentence shall be of
no further force or effect.
By signing this letter agreement, the members of the Carmel Group hereby
acknowledge and memorialize such agreement.
Finally, by signing this letter agreement, each of you acknowledges
that you are participating in the offering pursuant to a demand registration
right (in the case of members of the Investcorp Group) or a piggyback
registration right (in the case of members of the Carmel Group), and that each
of you is including in the offering the number of shares of common stock set
forth opposite your respective name in Exhibit A hereto, subject to an increase
as set forth in paragraph 2 above.
Please sign in the space provided below to indicate your acceptance of
the terms of this letter agreement. This letter agreement may be executed in
counterpart, and shall be a binding agreement among each party signatory hereto.
Sincerely,
CSK AUTO CORPORATION
By: /s/ James G. Bazlen
Name: James J. Bazlen
Title: President and Chief Operating
Officer
CSK AUTO, INC.
By: /s/ James G. Bazlen
Name: James J. Bazlen
Title: President and Chief Operating
Officer
2
<PAGE> 3
AGREED AND ACCEPTED:
BALLET LIMITED Executed on: December 10, 1998
By: /s/ H. Richard Lukens III
Name: H. Richard Lukens III
Title: Authorized Representative
DENARY LIMITED Executed on: December 10, 1998
By: /s/ H. Richard Lukens III
Name: H. Richard Lukens III
Title: Authorized Representative
GLEAM LIMITED Executed on: December 10, 1998
By: /s/ H. Richard Lukens III
Name: H. Richard Lukens III
Title: Authorized Representative
HIGHLANDS LIMITED Executed on: December 10, 1998
By: /s/ H. Richard Lukens III
Name: H. Richard Lukens III
Title: Authorized Representative
NOBLE LIMITED Executed on: December 10, 1998
By: /s/ H. Richard Lukens III
Name: H. Richard Lukens III
Title: Authorized Representative
OUTRIGGER LIMITED Executed on: December 10, 1998
By: /s/ H. Richard Lukens III
Name: H. Richard Lukens III
Title: Authorized Representative
QUILL LIMITED Executed on: December 10, 1998
By: /s/ H. Richard Lukens III
Name: H. Richard Lukens III
Title: Authorized Representative
RADIAL LIMITED Executed on: December 10, 1998
By: /s/ H. Richard Lukens III
Name: H. Richard Lukens III
Title: Authorized Representative
3
<PAGE> 4
SHORELINE LIMITED Executed on: December 10, 1998
By: /s/ H. Richard Lukens III
Name: H. Richard Lukens III
Title: Authorized Representative
ZINNIA LIMITED Executed on: December 10, 1998
By: /s/ H. Richard Lukens III
Name: H. Richard Lukens III
Title: Authorized Representative
INVESTCORP INVESTMENTS EQUITY LIMITED Executed on: December 9, 1998
By: Sydney J. Coleman
Name: The Director Ltd.
Title: Director
EQUITY CSKA LIMITED Executed on: December 9, 1998
By: Sydney J. Coleman
Name: The Director Ltd.
Title: Director
EQUITY CSKB LIMITED Executed on: December 9, 1998
By: Sydney J. Coleman
Name: The Director Ltd.
Title: Director
AUTO EQUITY LIMITED Executed on: December 9, 1998
By: /s/ Mark I. Rutkowski
Name: Mark I. Rutkowski
Title: Director
AUTO PARTS LIMITED Executed on: December 9, 1998
By: /s/ Michael Pilling
Name: Michael Pilling
Title: Director
AUTO INVESTMENTS LIMITED Executed on: December 9, 1998
By: /s/ Ian A.N. Wight
Name: Ian A.N. Wight
Title: Director
4
<PAGE> 5
CSK INVESTMENTS LIMITED Executed on: December 9, 1998
By: /s/ Glen Wigney
Name: Glen Wigney
Title: Director
CSK EQUITY LIMITED Executed on: December 9, 1998
By: /s/ Avis B. Thompson
Name: Avis B. Thompson
Title: Director
CSK INTERNATIONAL LIMITED Executed on: December 9, 1998
By: /s/ Christopher J. Bowring
Name: Christopher J. Bowring
Title: Director
EQUITY CSKC LIMITED Executed on: December 9, 1998
By: Sydney J. Coleman
Name: The Director Ltd.
Title: Director
INVESTCORP CSK HOLDINGS L.P. Executed on: December 9, 1998
By: Sydney J. Coleman
Name: The Director Ltd., for Gila
Limited
Title: Director
SOUTH BAY LIMITED Executed on: December 9, 1998
By: /s/ Kenneth Shannahan
Name: Martonmere Services Ltd.
Title: Director
NEW CSK EQUITY LIMITED Executed on: December 9, 1998
By: /s/ William Walmsley
Name: William Walmsley
Title: Director
5
<PAGE> 6
Chase Bank (C.I.) Nominees Limited is a party hereto as the registered
holder of the legal title to 171,015 common stock shares of CSK Auto
Corporation, as nominee for principals who, as the beneficial owners thereof,
(the "Owners") act through the Program Executive for the Investcorp PIP scheme
as their duly appointed Agent [Attorney], and to whose request and direction
Chase Bank (C.I.) Nominees Limited acts in regard to the 171,015 common stock
shares of CSK Auto Corporation. Accordingly, Chase Bank (C.I.) Nominees Limited
is a party to this Agreement exclusively in its capacity as nominee and bare
trustee for the Owners and so that references in this letter to the
"undersigned" shall be construed so that no liability shall be incurred by Chase
Bank (C.I.) Nominees Limited on its own account and each undertaking, covenant
and agreement herein shall be that exclusively of the Owners and each of them
acting through Chase Bank (C.I.) Nominees Limited .
TIMOTHY D. TRAFFORD
/s/ Timothy D. Trafford
- -------------------------------------
(as agent for the Owners)
CHASE BANK (C.I.) NOMINEES LIMITED Executed on: December 11, 1998
By: /s/ Ian N. Blackburn
Name: Ian N. Blackburn
Title: Director
6
<PAGE> 7
THE JAB TRUST Executed on: December 8, 1998
By: /s/ James G. Bazlen
Name: James G. Bazlen
Title: Trustee
By: /s/ Alice T. Bazlen
Name: Alice T. Bazlen
Title: Trustee
Executed on: December 8, 1998
/s/ James G. Bazlen
James G. Bazlen
Executed on: December 8, 1998
/s/ Maynard Jenkins
Maynard Jenkins
CHILTERN TRUSTEES LIMITED, in Executed on: December 10, 1998
its capacity as trustee for
The Carmel Trust
By: /s/ C. M. De Carteret
Name: C. M. De Carteret
Title: Director
TRANSATLANTIC FINANCE LTD. Executed on: December 10, 1998
By: /s/ James Lieb
Name: James Lieb
Title: Executive VP
7
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