CSK Auto Corporation Reports Fiscal 2003 Third Quarter Same Store Sales Up 8% and Net Income Increases 41% Compared to Third Quarter of Fiscal 2002.Business Editors PHOENIX--(BUSINESS WIRE)--Dec. 4, 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. Corporation (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 third quarter of fiscal 2003. The Company reports the following: -- 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 8% during the third quarter of fiscal 2003 on top of a 7% same store sales increase in the third quarter of fiscal 2002. -- GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). net income for the third quarter of fiscal 2003 increased to $15.0 million from $10.7 million in the third quarter of fiscal 2002. -- GAAP earnings per share increased 38% to $0.33 in the third quarter of fiscal 2003 from $0.24 in the third quarter of fiscal 2002. -- Net debt (see discussion in attached tables) was reduced by $49.2 million from the end of fiscal year 2002. -- Free cash flow (see discussion in attached tables) was $48.5 million during the first three quarters of fiscal 2003. Thirteen Weeks Ended November November: see month. 2, 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 thirteen weeks ended November 2, 2003 (the "third quarter of fiscal 2003") were $409.8 million compared to $383.0 million in the thirteen weeks ended November 3, 2002 (the "third quarter of fiscal 2002"). Same store retail sales increased 8% (7% increase in commercial sales) on top of a 7% same store sales increase in the third quarter of fiscal 2002. The increase in sales is a result of our continued increase in average sale per customer and attraction of new customers to our stores through our new product offerings. Gross profit was $192.2 million, or 46.9% of net sales, in the third quarter of fiscal 2003 as compared to $180.8 million, or 47.2% of net sales, in the third quarter of fiscal 2002. Consistent with the Company's prior guidance, our new product offerings carry slightly lower gross margin rates; however, improved comparable store sales resulted in higher gross profit dollars. In addition, 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. Had this guidance been implemented during the third quarter of fiscal 2002, approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $2.4 million of vendor allowances would have reduced cost of sales rather than operating and administrative expenses. Operating and administrative expenses for the third quarter of fiscal 2003 were $154.9 million, or 37.8% of net sales, compared to $149.4 million, or 39.0% of net sales, for the third quarter of fiscal 2002. The 120 basis point reduction is a result of our ability to leverage our fixed operating costs operating costs npl → gastos mpl operacionales over our increasing sales along with our continued focus on expense controls. 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 third quarter of fiscal 2003 increased 18% to $36.9 million (9.0% of net sales), compared to $31.4 million (8.2% of net sales) for the third quarter of fiscal 2002. Interest expense for the third quarter of fiscal 2003 decreased to $12.4 million from $14.2 million in the third quarter of fiscal 2002 as a result of our reduced 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 current credit facility established in June June: see month. 2003. GAAP net income for the third quarter of fiscal 2003 was $15.0 million, or $0.33 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 $10.7 million, or $0.24 per diluted common share, for the third quarter of fiscal 2002. On a comparable basis, which excludes certain items described in the attached table, net income increased to $15.2 million, or $0.33 per diluted common share, in the third quarter of fiscal 2003 from $10.7 million, or $0.24 per diluted common share, in the third quarter of fiscal 2002. "We are very pleased to be an industry leader in same store sales increases. The sales increases and the continued focus on expense controls have driven more dollars to the bottom line," 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 Corporation. "Our improved operating performance has allowed us to reduce our debt levels substantially and generate significant amounts of free cash flow. Our strong comparable store sales growth has continued into our fourth quarter." Thirty-nine Weeks Ended November 2, 2003 Sales for the thirty-nine weeks ended November 2, 2003 ("thirty-nine weeks of fiscal 2003") were $1,205.7 million compared to $1,156.9 million for the thirty-nine weeks ended November 3, 2002 ("thirty-nine weeks of fiscal 2002"). Same store sales increased 5% (comprised of a 6% increase in retail sales and a 4% increase in commercial sales) on top of a 7% same store sales increase in the thirty-nine weeks of fiscal 2002. The increase in sales is a result of our continued increase in average sale per customer and attraction of new customers to our stores through the new product offerings. Gross profit was $560.9 million, or 46.5% of net sales, for the thirty-nine weeks ended November 2, 2003 as compared to $528.0 million or 45.6% of net sales, in the comparable thirty-nine week period of fiscal 2002. As previously discussed, we adopted EITF No. 02-16 during the first quarter of fiscal 2003. Had 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. been implemented during the comparable thirty-nine weeks of fiscal 2002, approximately $10.2 million of vendor allowances would have reduced cost of sales rather than operating and administrative expenses. Operating profit for the thirty-nine weeks of fiscal 2003 totaled $98.3 million, or 8.2% of net sales, compared to $82.7 million, or 7.2% of net sales, for the thirty-nine weeks of fiscal 2002. As a percentage of net sales, operating and administrative expenses were 38.3% in both fiscal periods. Interest expense for the thirty-nine weeks of fiscal 2003 decreased to $39.6 million from $48.2 million in the thirty-nine weeks of fiscal 2002 as a result of our reduced debt levels and more favorable terms under our current credit facility. GAAP net income for the thirty-nine weeks of fiscal 2003 was $33.4 million, or $0.73 per diluted common share, compared to net income of $18.2 million, or $0.46 per diluted common share, in the thirty-nine weeks of fiscal 2002. On a comparable basis, which excludes certain items described in the attached table, net income for the thirty-nine weeks of fiscal 2003 was $36.1 million, or $0.79 per diluted common share, compared to net income of $23.7 million, or $0.57 per diluted common share for the thirty-nine weeks of fiscal 2002. Free cash flow for the thirty-nine weeks of fiscal 2003 was $48.5 million compared to $15.2 million for the thirty-nine weeks 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 The point where a line, channel or circuit ends. See SCSI termination and hybrid. 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 in June 2003. Outlook Our third quarter sales trends have continued into the fourth quarter. Barring any unforeseen circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or and assuming same store sales increases of 5% to 6%, we expect full year net income between $49 million and $51 million (approximately $1.05 to $1.08 per diluted common share, assuming approximately 47 million shares outstanding). The increase in shares outstanding reflects the impact of our share price increase under the treasury method of accounting for stock options in addition to stock option exercises over the period. As compared to the fourth quarter of fiscal 2002, we anticipate slightly lower gross margin rates associated with our new product offerings during the fourth quarter of fiscal 2003. In addition, our diluted share count will be higher in the fourth quarter of fiscal 2003 than in the fourth quarter of fiscal 2002. We are forecasting free cash flow for fiscal 2003 of between $70 million and $75 million. We also expect a full-year reduction of net debt of between $70 million and $75 million. For fiscal 2004, we are forecasting same store sales increases of 3% to 4% and an approximate ap·prox·i·mate v. To bring together, as cut edges of tissue. adj. 1. Relating to the contact surfaces, either proximal or distal, of two adjacent teeth; proximate. 2. Close together. 20% increase in net income and earnings per share, compared to estimated fiscal 2003. Free cash flow in fiscal 2004 is expected to be between $65 and $75 million. We expect to use this excess cash primarily to reduce outstanding debt and to accelerate our store growth to approximately 45 new or relocated re·lo·cate v. re·lo·cat·ed, re·lo·cat·ing, re·lo·cates v.tr. To move to or establish in a new place: relocated the business. v.intr. stores during fiscal 2004. Conference Call In conjunction with this release, the Company will hold a quarterly conference call for the investing public. Interested parties may hear a replay of the conference call from 6:00 p.m. (ET) Thursday Thursday: see week. , December December: see month. 4, 2003 through 8:00 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 , December 5, 2003 by dialing (877) 519-4471 and using pass code 4311815. (If retrieving digital replay outside of the U.S. please dial (973) 341-3080, pass code 4311815.) A simultaneous webcast of the conference call will be available commencing at 5:00 p.m. (ET) on December 4, 2003 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 Relations Investor relations The process by which the corporation communicates with its investors. " and then "Conference Call." This webcast will be archived for five days. CSK Auto Corporation is the parent company of CSK Auto, Inc., a specialty retailer in the automotive aftermarket. As of November 2, 2003, the Company 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 CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except share and per share data)
Thirteen Weeks Thirty-nine Weeks
Ended Ended
----------------------- -----------------------
November 2, November 3, November 2, November 3,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net sales $409,750 $383,045 $1,205,713 $1,156,901
Cost of sales 217,565 202,266 644,802 628,924
----------- ----------- ----------- -----------
Gross profit 192,185 180,779 560,911 527,977
Other costs and
expenses:
Operating and
administrative 154,886 149,367 462,084 443,570
Store closing and
other restructuring
costs 203 12 339 551
Loss on sale of
stores -- -- -- 847
Secondary offering
costs 182 -- 182 265
----------- ----------- ----------- -----------
Operating profit 36,914 31,400 98,306 82,744
Interest expense, net 12,396 14,243 39,583 48,201
Loss on debt retirement -- -- 4,315 6,008
----------- ----------- ----------- -----------
Income before income
taxes 24,518 17,157 54,408 28,535
Income tax expense 9,476 6,471 21,029 10,382
----------- ----------- ----------- -----------
Net income (loss) $15,042 $10,686 $33,379 $18,153
=========== =========== =========== ===========
Basic earnings per
share:
Net income (loss) $0.33 $0.24 $0.74 $0.46
=========== =========== =========== ===========
Shares used in
computing per share
amounts 45,826,604 45,154,866 45,396,383 39,129,499
=========== =========== =========== ===========
Diluted earnings per
share:
Net income (loss) $0.33 $0.24 $0.73 $0.46
=========== =========== =========== ===========
Shares used in
computing per share
amounts 46,238,571 45,313,673 45,619,257 39,236,096
=========== =========== =========== ===========
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 net income to remove the effect of these non-comparable items to more accurately compare our operating performance from period to period.
Comparable Basis
-----------------------------------------------
Thirteen Weeks Thirty-nine Weeks
Ended Ended
----------------------- -----------------------
November 2, November 3, November 2, November 3,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Income before income
taxes $24,518 $17,157 $54,408 $28,535
Non-comparable items:
Loss on debt
retirement (1) -- -- 4,315 6,008
Interest expense (2) -- -- -- 1,531
Loss on sale of
stores (3) -- -- -- 847
Secondary offering
costs (4) 182 -- 182 265
----------- ----------- ----------- -----------
Comparable income
before income taxes 24,700 17,157 58,905 37,186
Income tax expense,
adjusted 9,547 6,471 22,766 13,528
----------- ----------- ----------- -----------
Net income - comparable
basis $15,153 $10,686 $36,139 $23,658
=========== =========== =========== ===========
Diluted earnings per
share - comparable
basis:
Net income -
comparable basis $0.33 $0.24 $0.79 $0.57
=========== =========== =========== ===========
Shares used in
computing per share
amounts (5) 46,238,571 45,313,673 45,619,257 41,478,362
=========== =========== =========== ===========
Non-comparable items consist of the following: (1) charges relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc 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 deferred financing fees in addition to redemption premiums redemption premium See call premium. associated with the redemption The liberation of an estate in real property from a mortgage. Redemption is the process by which land that has been mortgaged or pledged is bought back or reclaimed. It is accomplished through a payment of the debt owed or a fulfillment of the other conditions. of our 11% senior subordinated Subordinated A claim ranked lower in priority than other claims. Common stock claims are always subordinated to debt. 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; (4) costs related to secondary stock offerings in September September: see month. 2003 and July July: see month. 2002; and (5) Share count used in computing computing - computer per share amounts for the fiscal periods ending November 3, 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)
Thirteen Weeks Thirty-nine Weeks
Ended Ended
------------------- -------------------
Nov. 2, Nov. 3, Nov. 2, Nov. 3,
2003 2002 2003 2002
--------- --------- --------- ---------
Cash $46,852 $15,170 $46,852 $15,170
FIFO inventory $564,523 $556,122 $564,523 $556,122
Accounts payable $154,963 $175,097 $154,963 $175,097
Interest expense, net $12,396 $14,243 $39,583 $48,201
Capital expenditures $5,766 $2,064 $10,568 $5,681
Availability under revolving
credit facility $105,904 $59,081 $105,904 $59,081
Total debt (including current
maturities) $507,109 $533,588 $507,109 $533,588
Net debt (total debt less
cash) $460,257 $518,418 $460,257 $518,418
EBITDA (as adjusted) $45,655 $40,203 $124,384 $110,617
EDITDAR (as adjusted) $74,540 $69,024 $210,365 $196,986
We regularly utilize non-GAAP financial measures (these "measures") such as 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 (including EBITDA, as adjusted), 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) (including EBITDAR, as adjusted), free cash flow and net debt. We believe these measures 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 these measures, 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 assess our performance relative to our competitors COMPETITORS, French law. Persons who compete or aspire to the same office, rank or employment. As an English word in common use, it has a much wider application. Ferriere, Dict. de Dr. h.t. and relative to our own performance in prior periods. In addition, EBITDA, as adjusted, and EBITDAR, as adjusted, are used to monitor compliance with certain of our financial covenants. These measures 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. These measures and the associated year-to-year trends should not be considered in isolation. These measures may differ in method of calculation from similarly titled measures used by other companies. We believe that it is important for investors to have the opportunity to evaluate us using these measures. EBITDA, as adjusted, and EBITDAR, as adjusted, are calculated as follows ($ in thousands):
Thirteen Weeks Ended Thirty-nine Weeks Ended
--------------------- ------------------------
Nov. 2, Nov. 3, Nov. 2, Nov. 3,
2003 2002 2003 2002
---------- ---------- ----------- ------------
Calculation of EBITDA,
as adjusted and
EBITDAR, as adjusted:
Income before income
taxes $24,518 $17,157 $54,408 $28,535
Interest expense, net 12,396 14,243 39,583 48,201
Depreciation 7,562 7,822 22,999 23,944
Amortization (net of
deferred financing
costs) 997 981 2,897 2,817
---------- ---------- ----------- ------------
EBITDA 45,473 40,203 119,887 103,497
========== ========== =========== ============
Non-comparable items 182 -- 4,497 (1) 7,120
---------- ---------- ----------- ------------
EBITDA (as adjusted) 45,655 40,203 124,384 110,617
========== ========== =========== ============
Rent expense 28,885 28,821 85,981 86,369
---------- ---------- ----------- ------------
EBITDAR (as adjusted) $ 74,540 $ 69,024 $ 210,365 $ 196,986
========== ========== =========== ============
(1) Excludes interest of $1,531 which is already added back in the interest expense, net of $48,201 The items excluded from EBITDA, as adjusted, and EBITDAR, as adjusted, are significant components of our statement of operations See Income statement. and must be considered in performing a comprehensive assessment of our overall financial performance. EBITDA, as adjusted, has been calculated in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with the terms of our senior credit facility. EBITDA can be reconciled rec·on·cile v. rec·on·ciled, rec·on·cil·ing, rec·on·ciles v.tr. 1. To reestablish a close relationship between. 2. To settle or resolve. 3. to net cash provided by operations, which we believe to be the most directly comparable financial measure calculated and presented in accordance with GAAP, as follows ($ in thousands):
Reconciliation of EBITDA:
Thirteen Weeks Ended Thirty-nine Weeks Ended
--------------------- -----------------------
Nov. 2, Nov. 3, Nov. 2, Nov. 3,
2003 2002 2003 2002
---------- ---------- ----------- -----------
EBITDA $45,473 $40,203 $119,887 $103,497
Cash interest payments (3,572) (7,778) (28,534) (39,637)
Cash tax payments (722) -- (1,409) --
Other non-cash expenses 1,679 342 2,541 769
Other changes in
operating assets and
liabilities (29,287) (17,916) (33,422) (43,742)
---------- ---------- ----------- -----------
Net cash flow provided by
operating activities $ 13,571 $ 14,851 $ 59,063 $ 20,887
========== ========== =========== ===========
We define free cash flow as net cash provided by operating activities less cash paid for capital expenditures. Free cash flow can be reconciled to net cash provided by operations as follows ($ in thousands):
Reconciliation of Free Cash Flow:
Thirty-nine Weeks Ended
-----------------------------
November 2, November 3,
2003 2002
-------------- -------------
Net cash provided by operating activities
$59,063 $20,887
Cash paid for capital expenditures (10,568) (5,681)
-------------- -------------
Free cash flow $ 48,495 $ 15,206
============== =============
We define net debt as total debt (including current maturities) less cash and cash equivalents. Net debt can be reconciled as follows ($ in thousands):
Reconciliation of Net Debt:
Thirty-nine Weeks Ended
-----------------------------
November 2, November 3,
2003 2002
--------------- -------------
Total debt (including current maturities)
$507,109 $533,588
Cash and cash equivalents (46,852) (15,170)
--------------- -------------
Net debt $ 460,257 $ 518,418
=============== =============
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