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SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission File Number 001-13927

CSK Auto Corporation

(602) 265-9200

N/A

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

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

      As of June 13, 2003, CSK Auto Corporation had 45,173,284 shares of common stock outstanding.

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PART I

FINANCIAL INFORMATION

CSK AUTO CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

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CSK AUTO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

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CSK AUTO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

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

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CSK AUTO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      CSK Auto Corporation is a holding company. At May 4, 2003, CSK Auto Corporation had no business activity other than its investment in CSK Auto, Inc. (“Auto”), a wholly owned subsidiary. On a consolidated basis, CSK Auto Corporation and its subsidiaries are referred to herein as the “Company”, “we”, “us”, or “our”.

      Auto is a specialty retailer of automotive aftermarket parts and accessories. At May 4, 2003, we operated 1,108 stores in 19 states as a fully integrated company and single business segment under three brand names: Checker Auto Parts, founded in 1969 and operating in the Southwestern, Rocky Mountain and Northern Plains states and Hawaii; Schuck’s Auto Supply, founded in 1917 and operating in the Pacific Northwest and Alaska; and Kragen Auto Parts, founded in 1947 and operating primarily in California.

Note 1 — Basis of Presentation

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

Note 2 — Change in Accounting Principle

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

      During the first quarter of fiscal 2003, we adopted the provisions of EITF 02-16. Effective with the adoption, we implemented a policy of considering all cooperative advertising arrangements to be a reduction of product costs, unless we are specifically required to substantiate advertising costs incurred to the vendor and do so in the normal course of business. This required us to account for approximately $3.0 million of vendor allowances as a reduction of inventory and cost of sales rather than as a reduction to advertising expense in operating and administrative expenses as in prior fiscal years. Approximately $0.5 million of this amount reduced inventory cost under our last-in, first-out (“LIFO”) method at May 4, 2003 and reduced diluted earnings per share by $.01 in the first quarter of 2003.

      In the first quarter of fiscal 2002, vendor allowances totaling approximately $5.8 million were classified as a reduction to advertising expense (in operating and administrative expense) rather than as a reduction to cost of sales as currently required by EITF 02-16. Had the reclassification required by EITF 02-16 been implemented during the first quarter of fiscal 2002, gross margin for fiscal 2002 would have been 45.5%, as compared to 46.4% in fiscal 2003, and operating and administrative expenses as a percent of sales would have been 39.3%, as compared to 39.4% in fiscal 2003.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

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

Note 3 — Recent Accounting Pronouncements

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

      In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements 4, 44, and 64, Amendment of FASB Statement 13, and Technical Corrections.” SFAS No. 145 updates, clarifies and simplifies existing accounting pronouncements and addresses the reporting of debt extinguishments and accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. We adopted SFAS No. 145 on February 3, 2003. During the second quarter of fiscal 2002, we recorded an extraordinary loss of $3.7 million (net of a $2.3 million income tax benefit) relating to the early retirement of debt. SFAS No. 145 will require that this amount be reclassified to operations.

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

      In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” which amends SFAS No. 133. This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement is effective for contracts entered into or modified after June 30, 2003. We do not anticipate that the adoption of this statement will have a significant impact on our financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

Note 4 — Inventories

      Inventories are valued at the lower of cost or market, our costs being determined utilizing the LIFO method. Our inventory levels have been generally consistent in recent years and thus, under LIFO, costs of sales reflect the costs of the most currently purchased inventories. Inventory carrying values for financial statement purposes, on the other hand, reflect the costs relating to prices paid in prior years under the LIFO method. Our costs of acquiring inventories have been decreasing in recent years as our increased size and cash flows have enabled us to take advantage of volume discounts and lower product acquisition costs. Accordingly, it costs us less money to replace inventory today than the LIFO balances carried for similar inventory reflected in our financial statements. As a result of the LIFO method of accounting for inventory and the ability to obtain product at lower acquisition costs, we recorded reductions to cost of goods sold of $8.3 million and $7.3 million for the quarters ending May 4, 2003 and May 5, 2002, respectively.

      The replacement cost of inventories approximated $567.2 million and $545.0 million at May 4, 2003 and February 2, 2003, respectively, as compared to financial statement carrying values of $681.3 million and $650.8 million.

      While carrying balances are higher than replacement costs, such carrying balances are not higher than the net realizable value amount (“NRV”) we expect to earn by selling the inventory through our retail stores in the normal course of business. Under generally accepted accounting principles, NRV reflects the expected selling price of the inventories, less expected disposal costs and a normal profit margin.

      We evaluate the difference between carrying balances and NRV of our inventories at each balance sheet reporting date. At May 4, 2003, we estimate that the NRV of our inventories exceeded carrying values and thus no impairment is indicated. If our evaluation in a future period were to indicate that carrying values exceed the NRV of the inventories, the carrying balances of the inventory would be reduced to NRV, with a corresponding charge to operations.

Note 5 — Store Closing Costs

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