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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 3, 2004, CSK Auto Corporation had 46,532,915 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

      CSK Auto Corporation is a holding company. At May 2, 2004, 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 2, 2004, we operated 1,117 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 in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all information and footnotes required by generally accepted accounting principles for fiscal year end financial statements. 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 1, 2004, as included in our Annual Report on Form 10-K filed with the SEC on April 15, 2004.

Note 2 — Recent Accounting Pronouncements

      In January 2003, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities”, which addressed accounting for special-purpose and variable interest entities. In December 2003, the FASB issued FIN 46R, “Consolidation of Variable Interest Entities”, which superseded FIN 46. The effective date of FIN 46R is the end of the first reporting period that ends after March 15, 2004, unless the entity is considered to be a special-purpose entity. Companies that have adopted FIN 46 prior to the effective date of FIN 46R will either continue to apply FIN 46 until the effective date of FIN 46R or apply the provision of FIN 46R at an earlier date. As of May 2, 2004, we have adopted FIN 46 and FIN 46R with no impact on our financial statements.

      The FASB has released an Exposure Draft, “Share-Based Payment — An Amendment to FASB Statements No. 123 and 95”, which revises the rules governing stock option accounting. The exposure draft requires expense recognition of stock options and certain employee stock purchase plans in the statements of operations. The comment period ends June 30, 2004. The effective date of this Statement is expected to be in fiscal 2005. The pro forma impact on the first quarter of fiscal 2004 of expense recognition of unvested stock options is calculated as required under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” and disclosed in Note 7 of these financial statements.

Note 3 — Inventories

      Inventories are valued at the lower of cost or market, our costs being determined utilizing the Last-in First-out (“LIFO”) method. Under the LIFO method, costs of sales reflect the costs of the most recently purchased inventories. Inventory carrying balances on the other hand, reflect the costs relating to prices paid in prior years under the LIFO method. Our costs of acquiring inventories through normal purchasing activities have been moderately decreasing, as our increased size, financial performance 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 in our financial statements. As

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

a result of the LIFO method of accounting for inventory and the ability to obtain lower product acquisition costs, we recorded reductions to cost of goods sold of $1.2 million and $8.3 million for the quarters ending May 2, 2004 and May 4, 2003, respectively.

      The replacement cost of inventories, including capitalization, was approximately $562.9 million and $552.0 million at May 2, 2004 and February 1, 2004, respectively, as compared to financial statement carrying values of $678.6 million and $666.3 million. While financial statement carrying balances are higher than replacement costs, such carrying balances are not higher than the net realizable value (“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 selling costs and a normal profit margin to compute our NRV floor.

      We evaluate the difference between carrying balances and NRV of our inventories at each balance sheet reporting date. At May 2, 2004, we estimated that the NRV of our inventories exceeded carrying balances by approximately $1.0 million. Though not anticipated at this time, if our evaluation in a future period indicated that carrying balances exceeded the NRV of the inventories, the carrying balances of the inventory would be reduced to NRV, with a corresponding charge to operations.

Note 4 — Store Closing Costs

      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 performance, it is considered for closure. As a result of past acquisitions, we have closed numerous locations due to store overlap with previously existing store locations.

      We account for the costs of closed stores in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. Under SFAS No. 146, costs of operating lease commitments for a closed store are recognized as expense at fair value at the time we cease operating the store. Fair value of the liability is determined as the present value of future cash flows discounted using a credit-adjusted risk free rate. Accretion expense represents interest on our recorded closed store liabilities at the same credit adjusted risk free rate used to discount the cash flows. In addition, SFAS No. 146 also requires that the amount of remaining lease payments owed be reduced by estimated sublease income (but not to an amount less than zero). Sublease income in excess of costs associated with the lease is recognized as it is earned and included as a reduction to operating and administrative expense in the accompanying financial statements.

      The allowance for store closing costs is included in accrued expenses and other long term liabilities in the accompanying financial statements and primarily represents the discounted value of three future net cash outflows related to closed stores: (1) future rents to be paid over the remaining terms of the lease agreements for the stores (net of estimated probable sublease income); (2) lease commissions associated with the anticipated store subleases; and (3) contractual expenses associated with the closed store vacancy periods. Operating expenses, such as utilities and repairs, are expensed as incurred and no provision is made for employee termination costs. During the period that they remain open for business, the rent and other operating expenses for the stores to be closed continue to be reflected in normal operating expenses.

      As of May 2, 2004, we had a total of 161 store locations included in the allowance for store closing costs. Of this total, 17 locations were vacant and 144 locations were subleased. In addition to these stores, we had 56 service centers of which 3 were vacant and 53 were subleased. Future rental payments will be made through the expiration of the non-cancelable leases, the longest of which expires January 2018.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Activity in the allowance for store closings and the related payments for the first quarter of fiscal 2004 are as follows ($ in thousands):

      We expect cash outflows for vacant stores, sublease losses and lease buyouts of approximately $6.0 million during fiscal 2004, with the remainder of cash outflows relating to these items primarily occurring during fiscal 2005 through 2007.

Note 5 — Long Term Debt

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

      On April 5, 2004, we entered into an interest rate swap agreement to effectively convert $100.0 million of our 7% senior subordinated notes due 2014 to a floating rate, set semi-annually in arrears, equal to the 6 month LIBOR + 283 basis points. The agreement is for the term of the notes. The hedge is accounted for as a “fair value” hedge; accordingly, the fair value of the derivative and changes in the fair value of the underlying debt will be reported on our consolidated balance sheet and recognized in the results of operations. Based upon our

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

assessment of effectiveness of the hedge, changes in the fair value of this derivative and the underlying debt will not have a significant effect on our consolidated results of operations. At May 2, 2004, the fair value of the interest rate swap approximated $9.2 million, which is included as an increase in other long-term liabilities with an identical amount reflected as a basis adjustment to the 7% senior subordinated notes on the accompanying Consolidated Balance Sheet.

Note 6 — Earnings Per Share

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

Note 7 — Stock Based Compensation

      In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 requires expanded and more prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method on reported results.

      We have stock-based employee compensation plans, which are described more fully in Note 11 of the Notes to Consolidated Financial Statements in our 2003 Annual Report on Form 10-K filed with the SEC on April 15, 2004. We continue to apply the recognition and measurement provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for those plans. No material stock-based employee compensation expense is reflected in net income (loss) for the quarters ended May 2, 2004 or May 4, 2003 as the intrinsic value of all options granted under those plans was zero. The following table illustrates the effect on net income and earnings per share if

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

we had applied the fair value recognition provisions of SFAS No. 123 “Accounting for Stock-Based Compensation” ($ in thousands, except per share amounts):

Note 8 — Legal Matters

      During the third quarter of fiscal 2003, we received notification from the State of California Board of Equalization (the “Board”) of an assessment for approximately $1.2 million for sales tax and approximately $0.6 million for related interest based on the Board’s audit findings for the tax periods of October 1997 through September 2000. During this time period, we refunded the sales tax associated with battery cores to customers who returned a battery core to our stores. The Board believes that the sales tax associated with the battery cores should have been remitted to the taxing authority rather than refunded to the customers. Based on the Board’s position, we could be responsible for the sales tax and related interest associated with this matter for the audited periods of October 1997 through September 2000, plus the additional unaudited time period through December 2002, when we changed our business practices in this area to mitigate potential future tax related liability.

      We believe that we have a strong basis under California law for disputing the payment of this assessment, and in October 2003, timely filed a Petition for Redetermination with the Board. In May 2004, we received a response from the Board indicating that the district office that conducted the audit upheld its position, and requesting confirmation of our desire to proceed with the scheduling of an appeals conference concerning this matter. We have responded affirmatively to the Board’s letter and anticipate that an appeals conference before an appeals division attorney or auditor will be scheduled to take place within the next few months. Our practices through December 2002 relative to the handling of taxes on battery cores had been consistent for over a decade, and it is our position that our consistent treatment of battery core charges, together with prior tax audits and tax auditors’ written commentary concerning our handling of such charges, permits us to rely upon precedent set in prior audits. Reliance on prior audits is a position that is supportable under California law. We also have other defenses, and intend to vigorously defend our position with regard to this matter. A liability for the potential sales tax and related interest payments has not been recorded in our consolidated financial statements.

      We currently and from time to time are involved in other litigation incidental to the conduct of our business, including asbestos and similar product liability claims, slip and fall and other general liability claims, discrimination and employment claims, vendor disputes, and miscellaneous environmental and real estate claims. The damages claimed in some of this litigation are substantial. Based on internal review, we accrue reserves using our best estimate of the probable and reasonably estimable contingent liabilities. We do not currently believe that any of the legal claims, individually or in the aggregate, will result in liabilities material to our consolidated financial position, results of operations or cash flows.

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Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

      CSK Auto Corporation is the largest specialty 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 May 2, 2004, through our wholly owned subsidiary CSK Auto, Inc., we operated 1,117 stores in 19 states under one fully integrated operating format and three brand names:

	•	Checker Auto Parts, founded in 1969, with 415 stores in the Southwestern, Rocky Mountain and Northern Plains states and Hawaii;
	•	Schuck’s Auto Supply, founded in 1917, with 225 stores in the Pacific Northwest and Alaska; and
	•	Kragen Auto Parts, founded in 1947, with 477 stores primarily in California.

      During the thirteen weeks ended May 2, 2004 (the “first quarter of fiscal 2004”), we opened 7 stores, relocated 2 stores and closed 4 stores in addition to the 2 stores closed upon relocation. Our goal for fiscal 2004 is to open approximately 45 stores, consisting of approximately 35 new stores and 10 relocated stores. During fiscal 2004, we expect to close approximately 10 stores (in addition to approximately 10 stores closed due to relocation) for a net increase of approximately 25 stores in fiscal 2004.

      We compete in the U.S. automotive aftermarket industry. Our primary competitors include national and regional automotive parts chains, wholesalers, jobber stores, independent operators, automobile dealers, and discount stores and mass merchandisers that carry automotive parts. We offer a broad selection of national brand name, private-label and generic automotive products for domestic and imported cars and light trucks. We serve both the do-it-yourself (“DIY”) and the commercial installer, or do-it-for-me (“DIFM”) markets. During the first quarter of fiscal 2004, sales to the DIY market represented approximately 83% of our business, while sales to the DIFM market represented approximately 17% of our business. Due to the competitive nature of our business, we try to differentiate ourselves from other automotive parts and accessories retailers by our: (1) ability to make available a broad selection of products on a timely basis, (2) attractive pricing, (3) innovative product offerings, (4) conveniently located stores, (5) brand name recognition as a trusted source of automotive parts and accessories, (6) focus on customer service, and (7) knowledgeable sales associates.

      Net income for the first quarter of fiscal 2004 increased 72% compared to the thirteen weeks ended May 4, 2003 (the “first quarter of fiscal 2003”). Net income was positively impacted by our increased sales, gross profit and lower interest expense resulting primarily from our January 2004 refinancing.

      Automotive Information Systems, Inc. (“AIS”) is a wholly owned subsidiary of CSK Auto, Inc. that provides diagnostic vehicle repair information to automotive technicians, automotive replacement parts manufacturers, automotive test equipment manufacturers, and to DIY consumers. We are continuing to examine alternatives that will allow us to maximize the potential value of AIS without significantly increasing our capital commitment. Possibilities include joint ventures or a sale in a manner that would allow us to retain certain of the attributes of AIS we deem most valuable to our business. We do not anticipate that any potential transaction will have a material effect on our 2004 consolidated results of operations or our financial condition.

      The following discussion and analysis presents factors that affected our consolidated results of operations for the quarter ended May 2, 2004 and our consolidated financial position at that date. The following information should be read in conjunction with the Consolidated Financial Statements and Notes included in this Form 10-Q as well as our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on April 15, 2004.

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Results of Operations

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

      Net sales for the first quarter of fiscal 2004 increased 5.2% to $397.1 million from $377.4 million for the first quarter of fiscal 2003. Same store sales increased approximately 5% (approximately 5% retail and approximately 6% commercial). All of our regions had comparable store sales increases and sales were strong in core product categories such as batteries, brakes, shocks and rotating electric parts. Our core product offerings, as well as our new and innovative products, have contributed to an increase in our dollar average sale per customer.

      Gross profit was $188.6 million, or 47.5% of net sales, for the first quarter of fiscal 2004, as compared to $175.0 million, or 46.4% of net sales, for the first quarter of fiscal 2003. The increased gross profit margin dollars and percent are a result of our continuing efforts to lower the acquisition costs of our core products and our ability to source our promotional products at more favorable terms. In addition, we have reduced our store inventory shrinkage through improved store procedures and enhanced inventory control systems.

      Operating profit for the first quarter of fiscal 2004 totaled $29.5 million, or 7.4% of net sales, compared to $26.2 million, or 6.9% of net sales, for the first quarter of fiscal 2003. Operating and administrative expenses were 40.0% of sales in the first quarter of fiscal 2004 as compared to 39.4% of sales in the same quarter of fiscal 2003. The percentage increase is primarily attributed to slightly higher incentive payments and benefit costs associated with our employee compensation programs.

      Interest expense for the first quarter of fiscal 2004 decreased to $8.3 million from $13.9 million in the first quarter of fiscal 2003, primarily as a result of the lower interest rate structure as a result of our January 2004 refinancing.

      Income tax expense for the first quarter of fiscal 2004 was $8.3 million, compared to $4.7 million for the comparable period of fiscal 2003. Our effective tax rate increased slightly to 39.1% from 38.7%, primarily as a result of the non-deductibility of certain employee benefits and a reduction in employment based state tax credits as a percentage of pretax income.

      As a result of the above factors, net income increased to $13.0 million, or $0.28 per diluted common share, for the first quarter of fiscal 2004, compared to net income of $7.5 million, or $0.17 per diluted common share, for the first quarter of fiscal 2003.

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Liquidity and Capital Resources

     Overview of Liquidity

      Our primary cash requirements include working capital (primarily inventory), interest on our debt and capital expenditures. We are required to make only minimal debt amortization payments prior to fiscal 2008 other than capital lease payments. We intend to fund our cash requirements with cash flows from operating activities, borrowings under our senior credit facility and short-term trade credit relating to extended payment terms for inventory purchases. The following table outlines our liquidity:

      Availability under our revolving line of credit decreased during the first quarter of fiscal 2004 as a result of the issuance of certain letters of credit. Our liquidity has substantially improved over recent years allowing us to refinance our debt and reduce our overall interest rates.

      On June 8, 2004, our Board of Directors authorized, effective immediately, the purchase of the Company’s common stock with an aggregate purchase price not to exceed $25 million. We may buy shares in the open market, in privately negotiated transactions or otherwise, and will base our decisions on whether to repurchase shares and the timing of any such repurchases on factors including the stock price, our cash and debt levels, and general economic and market conditions. Any shares of stock repurchased under the plan will be retired and returned to the status of authorized and unissued shares. This share repurchase program will be in effect until December 2005.

      We lease our office and warehouse facilities, all but one of our retail stores, and much of our equipment. Substantially all of our store leases are operating leases with private landlords and provide for monthly rental payments based on a contractual amount. These leases generally require minimal initial cash outlay and we expect that substantially all of our new store locations will be leased pursuant to similar operating leases in the near future. There are no material changes to the contractual obligations table disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended February 1, 2004, filed with the SEC on April 15, 2004.

Analysis of Cash Flows

      The following table summarizes our cash flows from operating activities:

      During the first quarter of fiscal 2004, net cash provided by operating activities was $14.7 million compared to $15.7 million of cash provided by operating activities during the first quarter of fiscal 2003. The most significant component of the change relates to an increase in cash used to support working capital requirements resulting primarily from higher accounts receivable balances and lower accrued interest balances during the first quarter of fiscal 2004 relative to the first quarter of fiscal 2003. This was partially offset by an

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      Net cash used in investing activities totaled $5.2 million for the first quarter of fiscal 2004, compared to $1.5 million used during the comparable period of fiscal 2003. Capital expenditures during the first quarter of fiscal 2004 were $3.7 million higher than in the first quarter of fiscal 2003 as a result of investments made to support new store growth and additional capital upgrades to existing stores.

      Net cash used in financing activities totaled $3.2 million in fiscal 2004 compared to $14.9 million used in financing activities in the comparable period of fiscal 2003. This decrease primarily relates to lower payments on our senior credit facility, where there were no net payments made during fiscal 2004 compared to $12.0 million in net payments made during fiscal 2003. In addition, during the first quarter of fiscal 2004 we paid $0.9 million of debt issuance costs relating to our refinancing completed in January 2004.

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 performance, it is considered for closure. As a result of past acquisitions, we have closed numerous locations due to store overlap with previously existing store locations.

      We account for the costs of closed stores in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. Under SFAS No. 146, costs of operating lease commitments for a closed store are recognized as expense at fair value at the time we cease operating the store. Fair value of the liability is determined as the present value of future cash flows discounted using a credit-adjusted risk free rate. Accretion expense represents interest on our recorded closed store liabilities at the same credit adjusted risk free rate used to discount the cash flows. In addition, SFAS No. 146 also requires that the amount of remaining lease payments owed be reduced by estimated sublease income (but not to an amount less than zero). Sublease income in excess of costs associated with the lease is recognized as it is earned and included as a reduction to operating and administrative expense in the accompanying financial statements.

      The allowance for store closing costs is included in accrued expenses and other long term liabilities in the accompanying financial statements and primarily represents the discounted value of three future net cash outflows related to closed stores: (1) future rents to be paid over the remaining terms of the lease agreements for the stores (net of estimated probable sublease income); (2) lease commissions associated with the anticipated store subleases; and (3) contractual expenses associated with the closed store vacancy periods. Operating expenses, such as utilities and repairs, are expensed as incurred and no provision is made for employee termination costs. During the period that they remain open for business, the rent and other operating expenses for the stores to be closed continue to be reflected in normal operating expenses.

      As of May 2, 2004, we had a total of 161 store locations included in the allowance for store closing costs. Of this total, 17 locations were vacant and 144 locations were subleased. In addition to these stores, we had 56 service centers of which 3 were vacant and 53 were subleased. Future rental payments will be made through the expiration of the non-cancelable leases, the longest of which expires January 2018.

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      Activity in the allowance for store closings and the related payments for the first quarter of fiscal 2004 is as follows ($ in thousands):

      We expect cash outflows for vacant stores, sublease losses and lease buyouts of approximately $6.0 million during fiscal 2004, with the remainder of cash outflows relating to these items primarily occurring during fiscal 2005 through 2007.

Factors Affecting Liquidity and Capital Resources

     Sales Trends

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

      Our same store sales increased 5% during the first quarter of fiscal 2004. Since the beginning of the second quarter of fiscal 2004, same store sales have been slightly lower than expected, but still remain positive. We believe that the lower sales are primarily the result of cooler West Coast temperatures and that sales will begin to increase as the temperatures begin to rise. As a result, we continue to forecast full year same store sales increases of approximately 3.5% to 4%.

     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.

     Debt Covenants

      Our credit agreement contains negative covenants and restrictions on actions by us and our subsidiaries including, without limitation, restrictions and limitations on indebtedness, liens, guarantees, mergers, asset dispositions not in the ordinary course of business, investments, loans, advances and acquisitions, payment of dividends, transactions with Affiliates (as defined in the credit agreement), change in business conducted, and certain prepayments (other than in the ordinary course of business) and amendments of subordinated indebtedness. Our credit agreement requires that we meet certain financial covenants, ratios and tests, including a maximum leverage ratio and a minimum interest coverage ratio. The Consolidated Leverage Ratio is “Consolidated Total Funded Debt”, as defined in the credit agreement, divided by “Consolidated

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      A breach of the covenants, ratios, or restrictions contained in our credit agreement could result in an event of default thereunder. Upon the occurrence of such an event of default, the lenders under our credit agreement could elect to declare all amounts outstanding under the credit agreement, together with accrued interest, to be immediately due and payable. If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure the indebtedness. If the lenders under the credit agreement accelerate the payment of the indebtedness, we cannot be assured that our assets would be sufficient to repay in full that indebtedness, which is secured by substantially all of our assets.

      Although we have significantly reduced our outstanding debt over recent years, we are still highly leveraged. The degree to which we are leveraged could have important consequences on our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes. A substantial portion of our cash flow from operations must be dedicated to the payment of interest on our indebtedness, thereby reducing the funds available for other purposes. We are substantially more leveraged than some of our competitors, which might place us at a competitive disadvantage to those competitors that have lower debt service obligations and significantly greater operating and financial flexibility than we do. We may not be able to adjust rapidly to changing market conditions and we may be more vulnerable in the event of a downturn in general economic conditions or in our business.

     Interest Rates

      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 variable rate debt is sensitive to changes in interest rates. Our variable rate debt relates to borrowings under our senior credit facility, which is primarily vulnerable to movements in the LIBOR rate. On April 5, 2004, we entered into an interest rate swap agreement which converted the interest payment obligation on $100.0 million of our 7% senior subordinated notes to a floating rate, set semi-annually in arrears, equal to the 6 month LIBOR rate plus 283 basis points.

      At May 2, 2004, including the $100.0 million of senior subordinated notes that are subject to the interest rate swap agreement, 70% of our outstanding debt was at variable interest rates and 30% of our outstanding debt was at fixed interest rates. With $355.0 million in variable rate debt outstanding, a 1% change in the LIBOR rate to which this variable rate debt is tied would result in a $3.6 million change in our annual interest expense. This estimate assumes that our debt balance remains constant for an annual period and the interest rate change occurs at the beginning of the period.

Critical Accounting Matters

      For a discussion of our critical accounting matters, please refer to our fiscal 2003 Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 15, 2004.

Recent Accounting Pronouncements

      In January 2003, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities”, which addressed accounting for special-purpose and variable interest entities. In December 2003, the FASB issued FIN 46R, “Consolidation of Variable Interest Entities”, which superseded FIN 46. The effective date of FIN 46R is the end of the first reporting period that ends after March 15, 2004, unless the entity is considered to be a special-purpose entity. Companies that have adopted FIN 46 prior to the effective date of FIN 46R will either continue to apply FIN 46 until the effective date of FIN 46R or apply the provision of FIN 46R at an earlier date. As of May 2, 2004, we have adopted FIN 46 and FIN 46R with no impact on our financial statements.

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      The FASB has released an Exposure Draft, “Share-Based Payment — An Amendment to FASB Statements No. 123 and 95”, which revises the rules governing stock option accounting. The exposure draft requires expense recognition of stock options and certain employee stock purchase plans in the statements of operations. The comment period ends June 30, 2004. The effective date of this Statement is expected to be in fiscal 2005. The pro forma impact on the first quarter of fiscal 2004 of expense recognition of unvested stock options is calculated as required under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” and disclosed in Note 7 of these financial statements.

Forward-Looking Statements

      The foregoing Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements about the future performance of the Company that are based on management’s assumptions and beliefs in light of the information currently available. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from those statements. Factors that may cause differences are identified in our fiscal 2003 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on April 15, 2004, and are incorporated herein by reference.

      See “Factors Affecting Liquidity and Capital Resources” above.

     Evaluation of Disclosure Controls and Procedures

      Our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of May 2, 2004, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the CEO and CFO concluded that as of the evaluation date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by the company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

     Changes in Internal Control Over Financial Reporting

      During the fiscal quarter ended May 2, 2004, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

      During the third quarter of fiscal 2003, we received notification from the State of California Board of Equalization (the “Board”) of an assessment for approximately $1.2 million for sales tax and approximately $0.6 million for related interest based on the Board’s audit findings for the tax periods of October 1997 through September 2000. During this time period, we refunded the sales tax associated with battery cores to customers who returned a battery core to our stores. The Board believes that the sales tax associated with the battery cores should have been remitted to the taxing authority rather than refunded to the customers. Based on the Board’s position, we could be responsible for the sales tax and related interest associated with this matter for the audited periods of October 1997 through September 2000, plus the additional unaudited time period

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      We believe that we have a strong basis under California law for disputing the payment of this assessment, and in October 2003, timely filed a Petition for Redetermination with the Board. In May 2004, we received a response from the Board indicating that the district office that conducted the audit upheld its position, and requesting confirmation of our desire to proceed with the scheduling of an appeals conference concerning this matter. We have responded affirmatively to the Board’s letter and anticipate that an appeals conference before an appeals division attorney or auditor will be scheduled to take place within the next few months. Our practices through December 2002 relative to the handling of taxes on battery cores had been consistent for over a decade, and it is our position that our consistent treatment of battery core charges, together with prior tax audits and tax auditors’ written commentary concerning our handling of such charges, permits us to rely upon precedent set in prior audits. Reliance on prior audits is a position that is supportable under California law. We also have other defenses, and intend to vigorously defend our position with regard to this matter. A liability for the potential sales tax and related interest payments has not been recorded in our consolidated financial statements.

      We currently and from time to time are involved in other litigation incidental to the conduct of our business, including asbestos and similar product liability claims, slip and fall and other general liability claims, discrimination and employment claims, vendor disputes, and miscellaneous environmental and real estate claims. The damages claimed in some of this litigation are substantial. Based on internal review, we accrue reserves using our best estimate of the probable and reasonably estimable contingent liabilities. We do not currently believe that any of the legal claims, individually or in the aggregate, will result in liabilities material to our consolidated financial position, results of operations or cash flows.

      NONE

      NONE

      NONE

      NONE

      (a) Exhibits:

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      (b) Reports on Form 8-K:

      On March 18, 2004 we filed a current report on Form 8-K, to report under items 9 and 12 thereof, the issuance of a press release announcing our operating results for the fourth quarter and full year of fiscal 2003.

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SIGNATURE

      Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CSK AUTO CORPORATION

	By:	/s/ DON W. WATSON

	Don W. Watson
	Chief Financial Officer
	and Duly Authorized Officer

DATED: June 10, 2004

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EXHIBIT INDEX