CSK Auto Corp. Reports Fourth Quarter and Fiscal 2003 Results
PHOENIX--March 18, 2004--CSK Auto Corp. , the parent company of CSK Auto Inc., a specialty retailer in the automotive aftermarket, today reported its financial results for the fourth quarter and fiscal year ended Feb. 1, 2004.The financial information described as being on a "comparable basis" is adjusted for certain items described below and in the footnotes of the accompanying chart titled "Comparable Basis Financial Data."
The company noted the following highlights for the fourth quarter and fiscal year:
-- Net sales were $372.3 million for the quarter and a record $1,578.1 million for the full year;
-- Same store sales increased by 8.0% for the fourth quarter and 6.0% for the full year;
-- During the fourth quarter of fiscal 2003, we refinanced our debt, which is expected to provide us with pre-tax annual interest savings of between $11.0 million and $13.0 million or $0.14 to $0.17 per share; and
-- Adjusted free cash flow (a non-GAAP measure described below) for fiscal 2003 was $73.7 million.
Financial Results
Net sales for the 13 weeks ended Feb. 1, 2004 (the "fourth quarter of fiscal 2003") increased $22.6 million to $372.3 million from $349.7 million for the 13 weeks ended Feb. 2, 2003 (the "fourth quarter of fiscal 2002"). Sales for the fiscal year ended Feb. 1, 2004 ("fiscal 2003") increased $71.5 million to $1,578.1 million from $1,506.6 million for the fiscal year ended Feb. 2, 2003 ("fiscal 2002"). Same store sales increased 8.0% and 6.0% for the fourth quarter and fiscal year, respectively. The higher sales are a result of our continued efforts to increase our average sale per customer and to attract new customers to our stores through our new and innovative product offerings.
Gross profit increased $15.0 million to $187.2 million, or 50.3% of net sales for the fourth quarter of fiscal 2003 from $172.2 million or 49.2% of net sales for the fourth quarter of fiscal 2002. Gross profit increased $48.0 million to $748.2 million, or 47.4% of net sales, for fiscal 2003 from $700.2 million, or 46.5% of net sales, for fiscal 2002. As discussed previously during the year, we adopted Emerging Issues Task Force No. 02-16 ("EITF 02-16") during the first quarter of fiscal 2003. EITF 02-16 required that certain vendor allowances previously recognized in operating and administrative costs be reflected in cost of sales. Adjusted gross profit percentages for the fourth quarter and full year of fiscal 2002 for the effect of EITF 02-16 would have been 51.8% and 47.8% of net sales, respectively. As previously stated, we have continued to offer new product offerings that carry higher dollar averages but lower gross profit margin rates.
Operating profit for the fourth quarter of fiscal 2003 totaled $18.3 million (4.9% of net sales) compared to $19.8 million (5.7% of net sales) for the fourth quarter of fiscal 2002. Operating profit for fiscal 2003 totaled $116.6 million (7.4% of net sales) compared to $102.5 million (6.8% of net sales) for fiscal 2002. Operating profit was negatively impacted during fiscal 2003 as a result of charges related to our recent refinancing and a closed store reserve adjustment (see discussion below). Operating profit was favorably impacted during fiscal 2003 as a result of higher gross margin dollars and the leveraging of fixed costs over the rising net sales. On a comparable basis, operating profit for the fourth quarter of fiscal 2003 increased to $32.4 million from $30.8 million in the fourth quarter of fiscal 2002. On a comparable basis, operating profit for fiscal 2003 increased to $130.9 million from $114.6 million in fiscal 2002.
GAAP net loss for the fourth quarter of fiscal 2003 was $22.6 million, or $(0.49) per diluted common share, compared to net income of $3.7 million, or $0.08 per diluted common share, for the fourth quarter of fiscal 2002. On a comparable basis, net income increased to $13.4 million, or $0.29 per diluted common share, in the fourth quarter of fiscal 2003 from $10.8 million, or $0.24 per diluted common share, in the fourth quarter of fiscal 2002.
GAAP net income for fiscal 2003 was $10.8 million, or $0.23 per diluted common share, compared to GAAP net income of $21.8 million, or $0.54 per diluted common share, in fiscal 2002. On a comparable basis, net income for fiscal 2003 was $49.5 million, or $1.08 per diluted common share, compared to net income of $34.2, or $0.81 per diluted common share for fiscal 2002.
Other key financial performance indicators which have shown improvement year-over-year include: (1) net cash provided by operating activities which increased by $14.7 million to $50.6 million in fiscal 2003 from $35.9 million in fiscal 2002; (2) capital expenditures increased to $16.1 million in fiscal 2003 from $9.6 million in fiscal 2002; (3) adjusted free cash flow (a non-GAAP measure defined below) increased $43.0 million to $73.7 million in fiscal 2003 from $30.7 million in fiscal 2002; and (4) net debt (a non-GAAP measure defined below) was reduced by $26.4 million in fiscal 2003 to $483.0 million from $509.4 million in fiscal 2002. Additional information on these items is presented in the attached tables.
In January 2004, we completed a refinancing of our debt that included the redemption of approximately 94% of our outstanding $280.0 million 12% senior notes and the issuance of $225.0 million 7% senior subordinated notes. In addition, we amended our bank credit facility, increasing our credit line by $75.0 million and reducing our interest rate spread by 50 basis points. As a result of the refinancing, we expect pre-tax annual savings of approximately $11.0 million to $13.0 million in interest expense, or $0.14 to $0.17 per share (assuming 47 million shares outstanding). In conjunction with these transactions, we incurred a loss on debt retirement during the fourth quarter of fiscal 2003 of approximately $45.2 million that included early redemption premiums, underwriting and bank fees and the write-off of certain financing fees and other costs. In addition, approximately $1.8 million of indirect costs related to these transactions were expensed as operating and administrative expenses.
The refinancing completed in the fourth quarter and the ongoing improvement in our operating results have increased our cash flow and financial flexibility, enabling us to pursue an alternate strategy to reduce our current portfolio of closed stores, which includes lease buyouts and foregoing lease extensions on locations that we currently sublease at a marginal profit. This change in strategy requires us to establish a new closed store reserve based upon the guidance in Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (FAS 146) which became effective Jan. 1, 2003, and reverse the existing closed store reserve which was previously established under EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." FAS 146 requires that costs under a lease contract for a closed store be recognized at fair value and that the amount of remaining lease payments owed be reduced by estimated sublease income (but not to an amount less than zero). This change in methodology has resulted in a fourth quarter non-cash charge of approximately $12.2 million. The charge reflects the elimination of net sublease income (leases with incremental estimated sublease income in excess of the costs of the original lease) from the reserve, partially offset by the discounting of net cash outflow. Sublease income in excess of costs associated with the lease will be recognized in future periods as it is earned.
Outlook
For fiscal year 2004, we are forecasting same store sales increases in the low-to-mid single digit range and we are expecting to open or relocate 45 stores. As a result of our projected sales increase and the impact of reduced interest expense resulting from our refinancing, we have revised our previous guidance of net income between $65.0 million and $69.0 to net income between $66.0 million and $69.0 million. This will result in diluted earnings per common share of between $1.42 and $1.47, assuming approximately 47.0 million diluted shares outstanding. This assumes that diluted earnings per common share for the first quarter of fiscal 2004 will be between $0.26 and $0.28. Free cash flow (as defined below) in fiscal year 2004 is expected to be between $75.0 and $85.0 million. We expect to use this excess cash primarily to reduce outstanding debt.
Conference Call
In conjunction with this release, the company will hold a conference call on Thursday, March 18, 2004, at 5 p.m. (ET) for the investing public. Investors may listen to a simultaneous webcast at www.cskauto.com. Click on "Company," "Investor Relations," then click "Conference Call." This webcast will be archived for five days. Interested parties may hear a replay of the conference call from 6 p.m. (ET) Thursday, March 18, 2004, through 8 p.m. (ET) Friday, March 19, 2004, by dialing 877-519-4471, passcode 4536362. (If retrieving digital replay outside of the United States, please dial 973-341-3080, passcode 4536362.)
CSK Auto Corp. is the parent company of CSK Auto Inc., a specialty retailer in the automotive aftermarket. As of Feb. 1, 2004, the company operated 1,114 stores in 19 states under the brand names Checker Auto Parts, Schuck's Auto Supply and Kragen Auto Parts.
-- Tables Follow --
CSK AUTO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands except per share amounts)
13 Weeks Ended Fiscal Year Ended
------------------ ----------------------
Feb. 1, Feb. 2 Feb. 1, Feb. 2,
2004 2003 2004 2003
------------------ ----------------------
Net sales $372,343 $349,745 $1,578,056 $1,506,646
Cost of sales 185,098 177,537 829,900 806,461
------------------ ----------------------
Gross profit 187,245 172,208 748,156 700,185
Other costs and expenses:
Operating and
administrative 156,613 147,948 618,879 592,630
Store closing and other
restructuring costs 12,330 4,475 12,669 5,026
------------------ ----------------------
Operating profit 18,302 19,785 116,608 102,529
Interest expense, net 11,408 14,060 50,991 62,261
Loss on debt retirement 45,179 -- 49,494 6,008
------------------ ----------------------
Income (loss) before income
taxes (38,285) 5,725 16,123 34,260
Income tax benefit (expense) 15,703 (2,066) (5,326) (12,448)
------------------ ----------------------
Net income (loss) $(22,582) $3,659 $10,797 $21,812
================== ======================
Basic earnings per share:
Net income (loss) $(0.49) $0.08 $0.24 $0.54
================== ======================
Shares used in computing
per share amounts 46,440 45,147 45,658 40,635
================== ======================
Diluted earnings per share:
Net income (loss) $(0.49) $0.08 $0.23 $0.54
================== ======================
Shares used in computing
per share amounts 46,440 45,238 45,964 40,752
================== ======================
During the periods presented, we incurred certain costs which we have excluded below for comparability. In order to evaluate our operating performance, we have adjusted net income (loss) to remove the effect of these non-comparable items to more accurately compare our operating performance from period to period.
Comparable Basis Financial Data
------------------------------------
13 Weeks Ended Fiscal Year Ended
----------------- ------------------
Feb. 1, Feb. 2, Feb. 1, Feb. 2,
2004 2003 2004 2003
----------------- ------------------
GAAP operating profit $18,302 $19,785 $116,608 $102,529
Non-comparable items:
Retirement agreement (1) -- 1,500 -- 1,500
Workers compensation (2) -- 4,900 -- 4,900
Loss on sale or closing of
stores (3) 12,203 4,376 12,203 5,223
Secondary offering costs (4) 58 214 240 479
Indirect refinancing costs (5) 1,827 -- 1,827 --
----------------- ------------------
Comparable operating profit $32,390 $30,775 $130,878 $114,631
================= ==================
GAAP income (loss) before income
taxes $(38,285) $5,725 $16,123 $34,260
Items 1-5 above 14,088 10,990 14,270 12,102
Loss on debt retirement (6) 45,179 -- 49,494 6,008
Interest expense (7) -- 170 -- 1,701
----------------- ------------------
Comparable income before income
taxes 20,982 16,885 79,887 54,071
Income tax expense, adjusted (7,622) (6,093) (30,388) (19,828)
----------------- ------------------
Net income - comparable basis $13,360 $10,792 $49,499 $34,243
================= ==================
Diluted earnings per share -
comparable basis:
Net income - comparable basis $0.29 $0.24 $1.08 $0.81
================= ==================
Shares used in computing per
share amounts (8) 46,815 45,238 45,964 42,321
================= ==================
Non-comparable items consist of the following: (1) $1.5 million non-cash charge relating to the vesting of a supplemental executive retirement agreement for the company's chairman; (2) $4.9 million of worker's compensation expense reflecting increased loss reserves for claims incurred during plan years 1999 through 2001 and claims relating to the acquired PACCAR stores, in response to increasing medical and claims costs, primarily in California; (3) $12.2 million of closed store charges in fiscal 2003 due to our change in strategy and $4.4 of closed store charges in fiscal 2002 due to revisions in reserves primarily relating to longer than anticipated vacancy periods for our closed stores as a result of the economic slowdown and in fiscal 2002 and $0.8 million for a loss related to the sale of certain Texas stores; (4) costs related to secondary stock offerings in January 2004, September 2003 and July 2002; (5) $1.8 million of indirect costs associated with our January 2004 refinancing; (6) $45.2 million of charges relating to redemption premiums, the write-off of certain financing fees and other costs related to our January 2004 refinancing, $4.3 million of charges for the write-off of certain financing fees and other costs related to our redemption of the balance of our 11% senior subordinated notes and establishment of our new credit facility in June 2003, and $6.0 million of charges relating to redemption premiums, the write-off of certain financing fees and other costs related to the redemption of our 11% senior subordinated notes in July 2002; (7) $0.2 million of interest relating to the vesting of a supplemental executive retirement agreement for the company's chairman, $1.2 million of interest related to the $50.0 million convertible subordinated debentures which were converted in May 2002 and $0.3 million of additional interest paid due to a required notice period prior to retiring the $71.7 million of 11% senior subordinated notes; and (8) share count used in computing per share amounts for the fiscal period ending Feb. 2, 2003, 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 Fiscal Year Ended
------------------------------------
Feb. 1, Feb. 2, Feb. 1, Feb. 2,
2004 2003 2004 2003
------------------------------------
Cash $37,221 $15,519 $37,221 $15,519
FIFO inventory $551,951 $560,000 $551,951 $560,000
Accounts payable $176,445 $164,430 $176,445 $164,430
Interest expense, net $11,408 $14,060 $50,991 $62,261
Capital expenditures $5,488 $3,892 $16,056 $9,573
Availability under revolving
credit facility $120,068 $54,698 $120,068 $54,698
Total debt (including current
maturities) $520,270 $524,967 $520,270 $524,967
Net debt (total debt less cash) $483,049 $509,448 $483,049 $509,448
EBITDA (as adjusted) $40,727 $39,580 $165,111 $150,197
EDITDAR (as adjusted) $69,128 $68,211 $279,493 $265,197
EBITDA, as adjusted, and EBITDAR, as adjusted, are calculated as follows ($ in thousands):
13 Weeks Ended Fiscal Year Ended
--------------------- -----------------------
Feb. 1, Feb. 2, Feb. 1, Feb. 2,
2004 2003 2004 2003
---------- ---------- ----------- -----------
Calculation of EBITDA,
as adjusted and EBITDAR,
as adjusted:
Income (loss) before
income taxes $(38,285) $5,725 $16,123 $34,260
Interest expense, net 11,408 14,060 50,991 62,261
Depreciation 7,291 7,802 30,290 31,746
Amortization (net of
deferred financing
costs) 1,046 1,003 3,943 3,820
---------- ---------- ----------- -----------
EBITDA (18,540) 28,590 101,347 132,087
========== ========== =========== ===========
Non-comparable items (1) 59,267 10,990 63,764 18,110
---------- ---------- ----------- -----------
EBITDA (as adjusted) 40,727 39,580 165,111 150,197
========== ========== =========== ===========
Rent expense 28,401 28,631 114,382 115,000
---------- ---------- ----------- -----------
EBITDAR (as adjusted) $ 69,128 $ 68,211 $ 279,493 $ 265,197
========== ========== =========== ===========
(1) Excludes interest of $170 in the 13 weeks ended Feb. 2, 2003, and $1,701 in the fiscal year ended Feb. 2, 2003, which are included in the interest expense, net of $14,060 and $62,261, respectively.
The items excluded from EBITDA, as adjusted, and EBITDAR, as adjusted, are significant components of our statement of operations and must be considered in performing a comprehensive assessment of our overall financial performance. EBITDA, as adjusted, and EBITDAR, as adjusted, have been calculated in accordance with the terms of our senior credit facility. The presentation is not intended to be a measure of GAAP performance.
EBITDA can be reconciled to net cash provided by operating activities, which we believe to be the most directly comparable financial measure calculated and presented in accordance with GAAP, as follows ($ in thousands):
Reconciliation of
EBITDA:
13 Weeks Ended Fiscal Year Ended
---------------------- -----------------------
Feb. 1, Feb. 2, Feb. 1, Feb. 2,
2004 2003 2004 2003
----------- ---------- ----------- -----------
EBITDA $(18,540) $28,590 $101,347 $132,087
Cash interest payments (23,047) (17,678) (51,581) (57,315)
Cash tax payments (757) (383) (2,166) (383)
Other non-cash expenses 514 979 3,055 1,748
Other changes in
operating assets and
liabilities 33,381 3,524 (41) (40,218)
----------- ---------- ----------- -----------
Net cash flow provided
by (used in) operating
activities $ (8,449) $ 15,032 $ 50,614 $ 35,919
=========== ========== =========== ===========
We define free cash flow as net cash provided by operating activities less cash paid for capital expenditures. We adjusted free cash flow for premiums paid on the early retirement of debt to compare free cash flow as generated by our normal operations. Free cash flow can be reconciled to net cash provided by operating activities as follows ($ in thousands):
Reconciliation of Free Cash Flow:
Fiscal Year Ended
---------------------
Feb. 1, Feb. 2,
2004 2003
---------- ----------
Net cash provided by operating activities
$50,614 $35,919
Cash paid for capital expenditures (16,056) (9,573)
---------- ----------
Free cash flow 34,558 26,346
========== ==========
Cash paid on early retirement of debt 39,176 4,368
---------- ----------
Adjusted free cash flow $ 73,734 $ 30,714
========== ==========
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:
Fiscal Year Ended
-----------------------
Feb. 1, Feb. 2,
2004 2003
----------- -----------
Total debt (including current maturities) $520,270 $524,967
Cash and cash equivalents (37,221) (15,519)
----------- -----------
Net debt $ 483,049 $ 509,448
=========== ===========