CSK Auto Corp. Reports Fiscal 2003 Second Quarter Same Store Sales Up 6% and Net Income Increases 165% Compared to Second Quarter of Fiscal 2002.Business Editors PHOENIX--(BUSINESS WIRE)--Sept. 3, 2003 CSK Auto CSK Auto Inc. is the largest specialty retailer of automotive parts and accessories in the western United States and one of the largest retailers of such products in the entire country. Corp. (NYSE NYSE See: New York Stock Exchange : CAO), the parent company of CSK Auto Inc., a specialty retailer in the automotive aftermarket Aftermarket See: Secondary market. aftermarket See secondary market. , today reported its financial results for the second quarter of fiscal 2003. The company reported the following highlights: -- Same store sales Same Store Sales A statistic used in retail industry analysis. It compares sales of stores that have been open for a year or more. Notes: This statistic allows investors to determine what portion of new sales has come from sales growth and what portion from the opening of increased by 6% during the second quarter of fiscal 2003 on top of a 7% same store sales increase in the second quarter of fiscal 2002. -- GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). net income increased to $10.8 million from $4.1 million in the second quarter of fiscal 2002. On a comparable basis, which excludes certain items described in the table below, net income increased to $13.5 million from $8.8 million in the second quarter of fiscal 2002. -- GAAP diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of increased to $0.24 from $0.10 in the second quarter of fiscal 2002. On a comparable basis, which excludes certain items described in the table below, diluted earnings per share increased to $0.30 from $0.21 in the second quarter of fiscal 2002. -- Reduction of net debt (total debt less cash) by $37.3 million during the first half of fiscal 2003. -- Free cash flow (operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. less capital expenditures) was $40.7 million during the first half of fiscal 2003. -- During June June: see month. 2003, the company established a new $325 million credit facility, which replaced the company's previous $300 million credit facility. In conjunction with this transaction, the company redeemed re·deem tr.v. re·deemed, re·deem·ing, re·deems 1. To recover ownership of by paying a specified sum. 2. To pay off (a promissory note, for example). 3. the remaining $9.5 million in aggregate principal amount of CSK Auto Inc.'s 11% senior subordinated notes. Thirteen Weeks Ended Aug. 3, 2003 Net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight for the 13 weeks ended Aug. 3, 2003 (the "second quarter of fiscal 2003") were $418.5 million, compared to $398.3 million for the 13 weeks ended Aug. 4, 2002 (the "second quarter of fiscal 2002"). Same store sales increased 6% (7% retail and 4% commercial) on top of a 7% same store sales increase in the second quarter of fiscal 2002. Gross profit was $193.7 million, or 46.3% of net sales, in the second quarter of fiscal 2003 as compared to $182.1 million, or 45.7% of net sales, in the second quarter of fiscal 2002. We adopted Emerging Issues Task Force No. 02-16, "Accounting by a Customer (Including a Reseller An organization that sells hardware and software to the general public. Resellers purchase products from software publishers and hardware manufacturers. ) for Certain Considerations Received from a Vendor" ("EITF EITF Emerging Issues Task Force EITF Edinburgh International Television Festival EITF Europe International Taekwon-Do Federation 02-16") during the first quarter of fiscal 2003. The implementation of EITF 02-16 required us to reclassify Verb 1. reclassify - classify anew, change the previous classification; "The zoologists had to reclassify the mollusks after they found new species" class, classify, sort out, assort, sort, separate - arrange or order by classes or categories; "How would you certain vendor allowances as a reduction of cost of sales and inventory rather than recognize them as a reduction to advertising expense in operating and administrative expenses as in prior fiscal years. This reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. did not have a material impact on our second quarter gross profit comparisons. Operating profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. for the second quarter of fiscal 2003 increased 25% to $35.2 million (8.4% of net sales), compared to $28.2 million (7.1% of net sales), for the second quarter of fiscal 2002. Operating and administrative expenses were 37.9% of net sales in the second quarter of fiscal 2003 compared to 38.3% of net sales in the same quarter of fiscal 2002 primarily due to expense control and leveraging of fixed costs fixed costs, n.pl the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation). over our increasing sales. Interest expense for the second quarter of fiscal 2003 decreased to $13.3 million from $16.2 million in the second quarter of fiscal 2002 as a result of our reduced outstanding debt levels and more favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. terms under our new credit facility. GAAP net income for the second quarter of fiscal 2003 was $10.8 million, or $0.24 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. common share, compared to net income of $4.1 million, or $0.10 per diluted common share, for the second quarter of fiscal 2002. On a comparable basis, which excludes certain items described in the table below, net income for the second quarter of fiscal 2003 was $13.5 million, or $0.30 per diluted common share, compared to net income of $8.8 million, or $0.21 per diluted common share, for the second quarter of fiscal 2002. "We continue to be very pleased with our growth in operating profits and our same store sales increases of 6% on top of a 7% increase in the second quarter of fiscal 2002. Operating profit margins Operating profit margin The ratio of operating profit to net sales. continued to be strengthened as a result of our continued focus on lowering product acquisition costs and taking advantage of available vendor allowances. We remained very focused on the generation of free cash flow and the reduction of debt, generating free cash flow of almost $41 million during the first half of fiscal 2003 and reducing net debt by over $180 million during the last 18 months," said Maynard Maynard can refer to: It is a surname used across the English-speaking world. Places in the United States of America:
n. 1. A name of contempt for a flatterer of persons high in social or official life; as, the Jenkins employed by a newspaper s>. , chairman and chief executive officer of CSK Auto Corp. "Our new credit facility will reduce our future interest expense and improve our free cash flow. If current trends continue, fiscal 2003 should be our best financial performance." Twenty-six Weeks Ended Aug. 3, 2003 Net sales for the 26 weeks ended Aug. 3, 2003 (the "first half of fiscal 2003") were $796.0 million, compared to $773.9 million for the 26 weeks ended Aug. 4, 2002 (the "first half of fiscal 2002"). Same store sales increased 4%. Gross profit was $368.7 million, or 46.3% of net sales, in the first half of fiscal 2003 as compared to $347.2 million, or 44.9% of net sales, in the first half of fiscal 2002. As previously discussed, we adopted EITF No. 02-16 during the first quarter of fiscal 2003. Had this reclassification been implemented during the first half of fiscal 2002, approximately $7.8 million of vendor allowances would have reduced cost of sales rather than operating and administrative expenses. We have continued to increase gross margin rates year over year by reducing inventory acquisition costs and increasing our ability to take advantage of available vendor allowances. Operating profit for the first half of fiscal 2003 totaled $61.4 million, or 7.7% of net sales, compared to $51.3 million, or 6.6% of net sales, for the first half of fiscal 2002. Operating and administrative expenses were higher in the first half of fiscal 2003 than in the first half of fiscal 2002, partially as a result of the impact of adopting EITF 02-16 as discussed above. Interest expense for the first half of fiscal 2003 decreased to $27.2 million from $34.0 million in the first half of fiscal 2002 as a result of our reduced outstanding debt levels and more favorable terms under our new credit facility. GAAP net income for the first half of fiscal 2003 was $18.3 million, or $0.41 per diluted common share, compared to net income of $7.5 million, or $0.21 per diluted common share, for the first half of fiscal 2002. On a comparable basis, which excludes certain items described in the table below, net income for the first half of fiscal 2003 was $21.0 million, or $0.46 per diluted common share, compared to net income of $12.9 million, or $0.32 per diluted common share, for the first half of fiscal 2002. Free cash flow for the first half of fiscal 2003 was $40.7 million compared to $2.4 million for the first half of fiscal 2002. The most significant components of the increase were: (1) higher net income primarily as a result of expense control and improved product mix; (2) improved working capital management; and (3) cash proceeds received from the termination of our interest rate swap Interest Rate Swap A deal between banks or companies where borrowers switch floating-rate loans for fixed rate loans in another country. These can be either the same or different currencies. agreement. The company also expects full-year paydown Paydown A payment made towards an outstanding loan balance. Notes: Every time you make a mortgage payment you are "paying down" your loan. See also: Loan, Mortgage, Principal paydown In a corporate or U.S. of our long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. of between $70 million and $75 million during fiscal 2003 (a debt paydown equivalent to between $1.50 and $1.65 per diluted common share). New Credit Facility In June 2003, the company replaced its $300.0 million credit facility with a new $325.0 million senior credit facility consisting of a $200.0 million term loan and a $125.0 million revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility. The term loan and revolving credit facility have maturities of June 2009 and June 2008, respectively. The new credit facility carries interest rate spreads that are 0.5% to 0.75% lower than our prior facility. We used proceeds from the new credit facility to redeem redeem v. to buy back, as when an owner who had mortgaged his/her real property pays off the debt. The term also refers to paying the amount due and all charges after a foreclosure (due to failure to make payments when due) has begun. the remaining $9.5 million in aggregate principal amount of CSK Auto Inc.'s 11% senior subordinated notes, including accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. and unpaid interest. In connection with these transactions, the company incurred charges totaling $4.3 million relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc early redemption premium redemption premium See call premium. , certain costs associated with the new credit facility and the write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of unamortized deferred debt issuance costs. These costs are reflected as a loss on debt retirement in the accompanying consolidated statement of operations See Income statement. . Outlook As a result of our continued strong same store sales trends and our new credit facility, we expect full year net income between $48 million and $50 million (approximately $1.04 to $1.07 per diluted share). We are also now forecasting free cash flow for fiscal 2003 of between $70 million and $75 million. Conference Call In conjunction with this release, we will hold a quarterly conference call for the investing public commencing at 5 p.m. (ET) on Wednesday Wednesday: see week. , Sept. 3, 2003. Interested parties may hear a replay of the conference call from 7 p.m. (ET) Wednesday, Sept. 3, 2003 through 8 p.m. (ET) Friday Friday: see Sabbath; week. Friday young Indian rescued by Crusoe and kept as servant and companion. [Br. Lit.: Robinson Crusoe] See : Servant , Sept. 5, 2003 by dialing 877-519-4471 and using passcode 4121684. (If retrieving digital replay outside of the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , please dial 973-341-3080, passcode 4121684.) Additionally, a simultaneous webcast of the conference call will be available at www.cskauto.com by pointing one's browser browser Software that allows a computer user to find and view information on the Internet. The first text-based browser for the World Wide Web became available in 1991; Web use expanded rapidly after the release in 1993 of a browser called Mosaic, which used and clicking on "Company," "Investor Info" and then "Conference Calls." This webcast will be archived for five days. CSK Auto Corp. is the parent company of CSK Auto Inc., a specialty retailer in the automotive aftermarket. As of Aug. 3, 2003, we operated 1,108 stores in 19 states under the brand names Checker check·er n. 1. a. One, such as an inspector or examiner, that checks. b. One that receives items for temporary safekeeping or for shipment: a baggage checker. 2. Auto Parts Auto parts are components of automobiles. They mainly are, in alphabetic order (only car specific articles or articles with car section):
Certain statements contained in this release are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . They discuss, among other things, expected growth, future store development and relocation RELOCATION, Scotch law, contracts. To let again to renew a lease, is called a relocation. 2. When a tenant holds over after the expiration of his lease, with the consent of his landlord, this will amount to a relocation. strategy, business strategies, future revenues and future performance. The forward-looking statements are subject to risks, uncertainties and assumptions, including, but not limited to, competitive pressures, demand for the company's products, the state of the economy, inflation, consumer debt levels and the weather. Actual results may differ materially from anticipated results described in these forward-looking statements.
CSK AUTO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except share and per share data)
13 Weeks Ended 26 Weeks Ended
----------------------- -----------------------
Aug. 3, Aug. 4, Aug. 3, Aug. 4,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net sales $418,514 $398,306 $795,963 $773,856
Cost of sales 224,812 216,238 427,237 426,658
----------- ----------- ----------- -----------
Gross profit 193,702 182,068 368,726 347,198
Other costs and
expenses:
Operating and
administrative 158,475 152,565 307,198 294,203
Store closing costs 43 239 136 539
Loss on sale of
stores -- 847 -- 847
Secondary offering
costs -- 265 -- 265
----------- ----------- ----------- -----------
Operating profit 35,184 28,152 61,392 51,344
Interest expense, net 13,251 16,240 27,187 33,958
Loss on debt retirement 4,315 6,008 4,315 6,008
----------- ----------- ----------- -----------
Income before income
taxes 17,618 5,904 29,890 11,378
Income tax expense 6,804 1,817 11,553 3,911
----------- ----------- ----------- -----------
Net income $10,814 $4,087 $18,337 $7,467
=========== =========== =========== ===========
Basic earnings per
share:
Net income $0.24 $0.10 $0.41 $0.21
=========== =========== =========== ===========
Shares used in
computing per share
amounts 45,216,839 39,826,079 45,182,747 36,099,845
=========== =========== =========== ===========
Diluted earnings per
share:
Net income $0.24 $0.10 $0.41 $0.21
=========== =========== =========== ===========
Shares used in
computing per share
amounts 45,499,239 40,138,663 45,274,127 36,178,528
=========== =========== =========== ===========
During the periods presented we incurred certain items, which we have excluded below for comparability. In order to evaluate our operating performance, we have adjusted income before income taxes to remove the effect of these non-comparable items to more accurately compare our operating performance from period to period.
Comparable Basis
--------------------------------
13 Weeks Ended 26 Weeks Ended
----------------------- -----------------------
Aug. 3, Aug. 4, Aug. 3, Aug. 4,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Income before income
taxes $17,618 $5,904 $29,890 $11,378
Non-comparable items:
Loss on debt
retirement (1) 4,315 6,008 4,315 6,008
Interest expense (2) -- 468 -- 1,531
Loss on sale of
stores (3) -- 847 -- 847
Secondary offering
costs (4) -- 265 -- 265
----------- ----------- ----------- -----------
Comparable income
before income taxes 21,933 13,492 34,205 20,029
Income tax expense,
adjusted 8,471 4,668 13,220 7,170
----------- ----------- ----------- -----------
Net income - comparable
basis $13,462 $8,824 $20,985 $12,859
=========== =========== =========== ===========
Diluted earnings per
share - comparable
basis:
Net income -
comparable basis $0.30 $0.21 $0.46 $0.32
=========== =========== =========== ===========
Shares used in
computing per share
amounts (5) 45,499,239 41,102,765 45,274,127 39,598,907
=========== =========== =========== ===========
Non-comparable items consist of the following: (1) charges relating to the write-off of deferred financing fees and redemption premiums associated with the redemption of our 11% senior subordinated notes; (2) interest related to the $50.0 million convertible subordinated debentures subordinated debenture An unsecured bond with a claim to assets that is subordinate to all existing and future debt. Thus, in the event that the issuer encounters financial difficulties and must be liquidated, all other claims must be satisfied before which were converted in May 2002 and additional interest paid due to a required notice period prior to retiring the $71.7 million of senior subordinated notes; (3) a loss related to the sale of certain Texas stores; and (4) costs related to our secondary stock offering. (5) Share count used in computing computing - computer per share amounts for the fiscal periods ending Aug. 4, 2002 assumes that the conversion of our $50.0 million subordinated debentures in May 2002 occurred at the beginning of the fiscal year.
Selected Financial Data:
($ in thousands)
13 Weeks Ended 26 Weeks Ended
------------------- -------------------
Aug. 3, Aug. 4, Aug. 3, Aug. 4,
2003 2002 2003 2002
--------- --------- --------- ---------
Cash $36,024 $16,519 $36,024 $16,519
FIFO inventory $568,600 $549,487 $568,600 $549,487
Accounts payable $183,117 $173,553 $183,117 $173,553
Interest expense, net $13,251 $16,240 $27,187 $33,958
Capital expenditures $4,180 $1,514 $4,802 $3,617
Availability under revolving
credit facility $104,014 $49,124 $104,014 $49,124
Total debt (including current
maturities) $508,165 $544,689 $508,165 $544,689
Net debt (total debt less
cash) $472,141 $528,170 $472,141 $528,170
EBITDA (as adjusted) $43,883 $38,209 $78,729 $70,414
EDITDAR (as adjusted) $72,340 $66,496 $135,855 $127,962
We believe that EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become , as adjusted, and EBITDAR Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring Costs - EBITDAR An indicator of a company's financial performance calculated as: = Revenue - Expenses (excluding tax, interest, depreciation, amortization, and restructuring costs) , as adjusted, are recognized supplemental measurement tools widely used by analysts and investors to help evaluate a company's overall operating performance, its ability to incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. and service debt, and its capacity for making capital expenditures. We use EBITDA, as adjusted, and EBITDAR, as adjusted, in addition to operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. and cash flows from operating activities, to monitor compliance with certain financial covenants and to assess our performance relative to our competitors and relative to our own performance in prior periods. We believe that it is important for investors to have the opportunity to evaluate us using the same measures. EBITDA, as adjusted, and EBITDAR, as adjusted, are calculated as follows ($ in thousands):
13 Weeks Ended 26 Weeks Ended
--------------------- -----------------------
Aug. 3, Aug. 4, Aug. 3, Aug. 4,
2003 2002 2003 2002
---------- ---------- ----------- -----------
Calculation of EBITDA,
as adjusted and
EBITDAR, as adjusted:
Income before income
taxes $17,618 $5,904 $29,890 $11,378
Interest expense, net 13,251 16,240 27,187 33,958
Depreciation 7,725 8,005 15,437 16,122
Amortization (net of
deferred financing
costs) 974 940 1,900 1,836
---------- ---------- ----------- -----------
EBITDA 39,568 31,089 74,414 63,294
========== ========== =========== ===========
Non-comparable items 4,315 7,120 4,315 7,120
---------- ---------- ----------- -----------
EBITDA (as adjusted) 43,883 38,209 78,729 70,414
========== ========== =========== ===========
Rent expense 28,457 28,287 57,126 57,548
---------- ---------- ----------- -----------
EBITDAR (as adjusted) $ 72,340 $ 66,496 $ 135,855 $ 127,962
========== ========== =========== ===========
EBITDA, as adjusted, and EBITDAR, as adjusted, do not represent funds available for our discretionary use and are not intended to represent or to be used as a substitute for net income or cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses data as measured under GAAP. The items excluded from EBITDA, as adjusted, and EBITDAR, as adjusted, are significant components of our statement of operations and must be considered in performing a comprehensive assessment of our overall financial performance. EBITDA, as adjusted, EBITDAR, as adjusted, and the associated year-to-year trends should not be considered in isolation. EBITDA, as adjusted, has been calculated in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with the terms of our senior credit facility and may differ in method of calculation from similarly titled measures used by other companies. EBITDA can be reconciled rec·on·cile v. rec·on·ciled, rec·on·cil·ing, rec·on·ciles v.tr. 1. To reestablish a close relationship between. 2. To settle or resolve. 3. to net cash provided by operations, which we believe to be the most directly comparable financial measure calculated and presented in accordance with GAAP, as follows ($ in thousands):
Reconciliation of EBITDA:
13 Weeks Ended 26 Weeks Ended
---------------------- ---------------------
Aug. 3, Aug. 4, Aug. 3, Aug. 4,
2003 2002 2003 2002
---------- ----------- ---------- ----------
EBITDA $39,568 $31,089 $74,414 $63,294
Cash interest payments (17,562) (21,425) (24,962) (31,859)
Cash tax payments (687) -- (687) --
Other non-cash expenses 505 316 862 427
Other changes in
operating assets and
liabilities 7,981 (34,706) (4,135) (25,826)
---------- ----------- ---------- ----------
Net cash flow provided by
operating activities $ 29,805 $ (24,726) $ 45,492 $ 6,036
========== =========== ========== ==========
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