CSK Auto (CAO) 10-K/A 2007 FY Annual report (amended)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

Amendment No. 1

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended February 4, 2007.
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number001-13927

CSK AUTO CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	86-0765798
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
645 E. Missouri Ave.
Suite 400 Phoenix, Arizona	85012
(Address of principal executive offices)	(Zip Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered:
Common Stock, $.01 par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to section 13 or 15(d) of the Act.  Yes o     No þ

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 o     No þ

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.  þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act.

Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act).  Yes o     No þ

As of July 30, 2006, the aggregate market value of our voting and non-voting common stock held by non-affiliates was approximately $527.9 million. For purposes of the above statement only, all directors and executive officers of the registrant are assumed to be affiliates.

As of July [  ], 2007, there were [43,950,751] shares of our common stock outstanding.

TABLE OF CONTENTS

			Page
PART II
	Item 8.	Financial Statements and Supplementary Data		1
PART IV
	Item 15.	Exhibits and Financial Statement Schedules		49
EX-31.01
EX-31.02
EX-32.01

As used herein, the terms “CSK,” “CSK Auto,” “the Company,” “we,” “us,” and “our” refer to CSK Auto Corporation and its subsidiaries, including its operating subsidiary, CSK Auto, Inc. and its subsidiaries. The term “Auto” as used herein refers to our operating subsidiary, CSK Auto, Inc., and its subsidiaries.

EXPLANATORY NOTE

This Annual Report onForm 10-K/A for the fiscal year ended February 4, 2007 (“fiscal 2006”) (this“Form 10-K/A”) is being filed to restate Note 20 — Quarterly Results (unaudited) in Item 8, “Financial Statements and Supplementary Data,” included in our Annual Report onForm 10-K for fiscal 2006 filed on July 9, 2007 (the “Original Annual Report”) to correct inadvertent errors in our interim period results of operations for the fiscal year ended January 29, 2006 (“fiscal 2005”) that occurred because of the manner in which the Company previously restated vendor allowances in interim periods that were initially restated in our Annual Report onForm 10-K for fiscal 2005 filed May 1, 2007. We are also amending interim results of operations for the third and fourth quarters of fiscal 2006 because of a clerical error in the tax provision recorded in those periods. The fiscal 2006 interim results of operations have also been amended to report the after tax amount for the line “income (loss) before cumulative effect of change in accounting principle” instead of the pretax amounts previously reported and the correct number of common shares used in calculating the diluted loss per share reported for the second and fourth quarters of fiscal 2006. These errors did not affect the annual results of operations for fiscal 2006 or fiscal 2005.

Except as discussed above, we have not modified or updated the disclosure presented in the Original Annual Report. ThisForm 10-K/A does not reflect events that have occurred after the filing of the Original Annual Report or modify or update disclosures presented in the Original Annual Report affected by subsequent events. Accordingly, thisForm 10-K/A should be read in conjunction with our filings made with the Securities and Exchange Commission (“SEC”) subsequent to the date of the filing of the Original Annual Report.

In addition, in accordance with applicable SEC rules, thisForm 10-K/A includes updated certifications from our Chief Executive Officer and interim Chief Financial Officer.

Note Concerning Forward-Looking Information

Certain statements contained in this Annual Report are forward-looking statements and are usually identified by words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “continue,” “could,” “should” or other similar expressions. We intend forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect current views about our plans, strategies and prospects and speak only as of the date of this Annual Report.

We believe that it is important to communicate our future expectations to our investors. However, forward-looking statements are subject to risks, uncertainties and assumptions often beyond our control, including, but not limited to, competitive pressures, the overall condition of the national and regional economies, factors affecting import of products, factors impacting consumer spending and driving habits such as high gas prices, war and terrorism, natural disastersand/or extended periods of inclement weather, consumer debt levels and inflation,

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demand for our products, integration and management of any current and future acquisitions, conditions affecting new store development, relationships with vendors, risks related to compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX” and such Section, “SOX 404”) and litigation and regulatory matters. Actual results may differ materially from anticipated results described in these forward-looking statements. For more information related to these and other risks, please refer to the Risk Factors section in the Original Annual Report. In addition to causing our actual results to differ, the factors listed and referred to above may cause our intentions to change from those statements of intention set forth in the Original Annual Report. Such changes in our intentions may cause our results to differ. We may change our intentions at any time and without notice based upon changes in such factors, our assumptions or otherwise.

Except as required by applicable law, we do not intend and undertake no obligations to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Given the uncertainties and risk factors that could cause our actual results to differ materially from those contained in any forward looking statement, you should not place undue reliance upon forward-looking statements and should carefully consider these risks and uncertainties, together with the other risks described from time to time in our other reports and documents filed with the SEC.

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PART II

Item 8.   Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

of CSK Auto Corporation:

We have completed integrated audits of CSK Auto Corporation’s February 4, 2007 (“fiscal 2006”), January 29, 2006 (“fiscal 2005”) and January 30, 2005 (“fiscal 2004”) consolidated financial statements and of its internal control over financial reporting as of February 4, 2007, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedules

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of CSK Auto Corporation and its subsidiaries at February 4, 2007 and January 29, 2006, and the results of their operations and their cash flows for each of the three years in the period ended February 4, 2007 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15(a)(2), present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in fiscal 2006.

Internal control over financial reporting

Also, we have audited management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that CSK Auto Corporation did not maintain effective internal control over financial reporting as of February 4, 2007, because of the effect of material weaknesses relating to (i) the Company’s control environment, which contributed to material weaknesses related to the Company’s controls surrounding the accounting for inventory, vendor allowances, certain accrued expenses, and store fixtures and supplies, and (ii) the Company’s resources, and policies and procedures to ensure proper and consistent application of accounting principles generally accepted in the United States of America (“GAAP”), which contributed to material weaknesses related to the Company’s controls surrounding the accounting for leases, allowance for sales returns, and accounting for certain accrued expenses, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and

1

evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management’s assessment at February 4, 2007.

1) Control Environment:  The Company did not maintain an effective control environment based on the criteria established in the COSO framework. The Company failed to design controls to prevent or detect instances of inappropriate override of, or interference with, existing policies, procedures and internal controls. The Company did not establish and maintain a proper tone as to internal control over financial reporting. More specifically, senior management failed to emphasize, through consistent communication and behavior, the importance of internal control over financial reporting and adherence to the Company’s code of business conduct and ethics, which, among other things, resulted in information being withheld from, and improper explanations and inadequate supporting documentation being provided to, the Company’s Audit Committee, its Board of Directors, its internal auditors and independent registered public accountants. In addition, certain members of senior management created an environment that discouraged employees from raising accounting related concerns and suppressed accounting related inquiries that were made.

The material weakness in the Company’s control environment discussed above permitted or contributed to the following additional material weaknesses and the material weakness described at 2) below:

a) Accounting for Inventory— The Company’s lack of effective controls did not prevent or detect the inappropriate override of established procedures regarding the adjustment of inventories for the results of annual physical inventory counts at each of the Company’s distribution centers, warehouses and stores. In addition, the Company’s lack of effective controls did not prevent or detect inappropriate and inaccurate accumulations of inventory balances in in-transit accounts (i.e., store returns to warehouses, distribution centers and return centers; and to vendors), which was known or should have been known to several members of the Finance organization. The lack of effective controls permitted (i) errors in inventory balances to be inappropriately systematically amortized to cost of sales in improper periods; (ii) instances where improper adjustments were made to certain product costs within the perpetual inventory system that, together with improper journal entries to the general ledger, resulted in the overstatement of inventory and cost of sales being recognized in incorrect periods; and (iii) the inappropriate capitalization of inventory overheads (purchasing, warehousing and distribution costs) and vendor allowance receivables. Additionally, Company personnel did not properly oversee the processes for accounting for inventory warranties and did not establish adequate accrued liabilities for warranty returns from customers.

b) Accounting for Vendor Allowances— The Company’s lack of effective controls did not detect or prevent the inappropriate override of established procedures related to: (i) the review and approval process for initial vendor allowance agreements; (ii) the monitoring of modifications to existing vendor allowance agreements; and (iii) the accuracy of recording of various vendor allowance transactions, including applicable cash collections and estimates. Furthermore, as a result of the lack of a sufficient complement of personnel with the requisite level of accounting knowledge, experience and training in GAAP, as discussed in 2) below,

2

the Company did not identify that provisions in certain agreements were required to be accounted for differently. The Audit Committee-led investigation revealed that improper debits were issued and applied to accounts payable for amounts the Company was not entitled to receive. These amounts were subsequently repaid to those vendors through direct cash payments, the foregoing of future cash discounts, the acceptance of increased prices on future purchases and paybacks through the warranty account. This material weakness resulted in errors in vendor allowance receivables, inventory, accounts payable and costs of sales accounts.

c) Accounting for Certain Accrued Expenses— The Company’s lack of effective controls did not prevent or detect the inappropriate override of established procedures to adjust workers’ compensation liabilities to amounts determined by independent actuaries. Errors in timing of incentive compensation accruals resulted from inadvertent misapplication of GAAP as well as the lack of effective controls which permitted override of established procedures. In addition, the Company identified improper and unsupported journal entries to the general ledger that resulted in the misstatement of certain accrued expense accounts and related operating and administrative expenses. This material weakness resulted in errors in certain accrued expenses and related operating and administrative expenses, including workers’ compensation liabilities and incentive compensation costs.

d) Accounting for Store Fixtures and Supplies— The Company’s lack of effective controls did not prevent or detect the override of established procedures for periodic physical inspections and usability evaluations of store fixtures held for future use in a warehouse. Specifically, the Company did not detect that certain of these assets were impaired or did not exist and that, as a result, their recorded cost was overstated. In addition, the Company’s controls failed to detect an inappropriate accumulation of costs related to store fixtures and supplies in general ledger accounts and the Company’s overstatement of supplies on hand in each store. This material weakness resulted in errors in its store fixtures (fixed assets) and supplies accounts (other current assets) and related operating and administrative expenses.

2) Resources, and Policies and Procedures to Ensure Proper and Consistent Application of GAAP:  The Company did not maintain effective controls over the application of GAAP. Specifically the Company failed to have a sufficient complement of personnel with a level of accounting knowledge, experience and training in the application of GAAP commensurate with the Company’s financial reporting requirements. This material weakness in the Company’s resources and policies contributed to the following additional material weaknesses:

a) Accounting for Leases— The Company did not maintain effective controls over the completeness and accuracy of its accounting for lease related fixed assets and debt, related operating and administrative expenses and interest expense, and financial statement disclosures. Specifically, the Company did not detect that a vehicle master leasing arrangement was not properly evaluated under GAAP.

b) Allowance for Sales Returns— The Company did not maintain effective controls over the completeness of its allowance for sales returns and the related net sales, cost of sales, accrued liabilities and other current assets accounts. Specifically, the Company did not detect that it had inappropriately excluded an estimate for certain returns that were incorrectly classified as warranty and core returns in the Company’s methodology for determining an allowance for sales returns.

c) Accounting for Certain Accrued Expenses— The Company did not maintain effective controls over the completeness, valuation and reporting in the proper period of certain of its accrued expense accounts and related operating and administrative expenses. The Company identified numerous instances of errors in accrual accounts, including transactions not accounted for in accordance with GAAP, that were attributable to the Company’s lack of a sufficient complement of experienced personnel and written accounting policies and procedures in certain areas.

Each of the aforementioned material weaknesses resulted in adjustments to the Company’s fiscal 2006 and 2005 annual and interim consolidated financial statements, and the restatement of the Company’s fiscal 2004 annual consolidated financial statements and interim consolidated financial statements for each of the first three quarters in fiscal 2005. In addition, each of these above material weaknesses could result in a material misstatement of the Company’s interim or annual consolidated financial statements and disclosures that would not be prevented or detected. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the fiscal 2006 consolidated financial statements, and our opinion regarding the effectiveness

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of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

In our opinion, management’s assessment that CSK Auto Corporation did not maintain effective internal control over financial reporting as of February 4, 2007, is fairly stated, in all material respects, based on criteria established inInternal Control — Integrated Frameworkissued by the COSO. Also, in our opinion, because of the effects of the material weaknesses described above on the achievement of the objectives of the control criteria, CSK Auto Corporation has not maintained effective internal control over financial reporting as of February 4, 2007, based on criteria established inInternal Control — Integrated Frameworkissued by the COSO.

/s/  PricewaterhouseCoopers LLP

Phoenix, Arizona

July 6, 2007

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CSK AUTO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Fiscal Year Ended
	February 4,		January 29,		January 30,
	2007		2006		2005
	(In thousands, except share and per share data)
Net sales	$	1,907,776	$	1,651,285	$	1,604,991
Cost of sales		1,011,712		864,674		839,564
Gross profit		896,064		786,611		765,427
Other costs and expenses:
Operating and administrative		788,400		653,471		629,309
Investigation and restatement costs		25,739		—		—
Store closing costs		1,487		2,903		2,229
Operating profit		80,438		130,237		133,889
Interest expense		48,767		33,599		33,851
Loss on debt retirement		19,450		1,600		1,026
Income before income taxes and cumulative effect of change in accounting principle		12,221		95,038		99,012
Income tax expense		4,991		37,248		39,450
Income before cumulative effect of change in accounting principle		7,230		57,790		59,562
Cumulative effect of change in accounting principle, net of tax		966		—		—
Net income	$	6,264	$	57,790	$	59,562
Basic earnings per share:
Income before cumulative effect of change in accounting principle	$	0.16	$	1.30	$	1.30
Cumulative effect of change in accounting principle		0.02		—		—
Net income per share	$	0.14	$	1.30	$	1.30
Shares used in computing per share amounts		43,876,533		44,465,409		45,713,271
Diluted earnings per share:
Income before cumulative effect of change in accounting principle	$	0.16	$	1.29	$	1.29
Cumulative effect of change in accounting principle		0.02		—		—
Net income per share	$	0.14	$	1.29	$	1.29
Shares used in computing per share amounts		44,129,278		44,812,302		46,002,376

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

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CSK AUTO CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	February 4,			January 29,
	2007			2006
	(In thousands,
	except share data)
ASSETS
Cash and cash equivalents	$	20,169		$	17,964
Receivables, net of allowances of $393 and $436, respectively		43,898			29,861
Inventories		502,787			508,507
Deferred income taxes		46,500			37,806
Prepaid expenses and other current assets		31,585			20,047
Total current assets		644,939			614,185
Property and equipment, net		174,409			174,112
Intangibles, net		67,507			71,807
Goodwill		224,937			223,507
Deferred income taxes		4,200			20,845
Other assets, net		35,770			35,578
Total assets	$	1,151,762		$	1,140,034
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	260,146		$	208,507
Accrued payroll and related expenses		60,306			48,483
Accrued expenses and other current liabilities		81,569			89,141
Current maturities of long-term debt		56,098			42,465
Current maturities of capital lease obligations		8,761			9,500
Total current liabilities		466,880			398,096
Long-term debt		451,367			507,523
Obligations under capital leases		15,275			18,106
Other liabilities		46,730			60,152
Total non-current liabilities		513,372			585,781
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value, 90,000,000 shares authorized, 43,950,751 and 43,830,322 shares issued and outstanding at February 4, 2007 and January 29, 2006, respectively		440			438
Deferred compensation		—			(1,735	)
Additional paid-in capital		433,912			426,560
Accumulated deficit		(262,842	)		(269,106	)
Total stockholders’ equity		171,510			156,157
Total liabilities and stockholders’ equity	$	1,151,762		$	1,140,034

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

	Fiscal Year Ended
	February 4,			January 29,			January 30,
	2007			2006			2005
	(In thousands)
Cash flows provided by (used in) operating activities:
Net income	$	6,264		$	57,790		$	59,562
Adjustments:
Depreciation and amortization on property and equipment		40,645			36,628			32,882
Amortization of other items		7,585			4,231			4,209
Amortization of debt discount and deferred financing costs		4,539			2,161			1,883
Stock-based compensation expense		4,972			571			191
Tax benefit relating to exercise of stock options		—			231			390
Write downs on disposal of property, equipment and other assets		3,354			2,145			2,034
Loss on debt retirement		8,496			1,600			131
Deferred income taxes		3,771			36,008			38,078
Changes in operating assets and liabilities:
Receivables		(13,412	)		6,747			(3,557	)
Inventories		3,652			(23,588	)		(11,710	)
Prepaid expenses and other current assets		(11,538	)		7,616			5,286
Accounts payable		51,639			17,329			(20,546	)
Accrued payroll, accrued expenses, and other current liabilities		4,838			9,987			(4,222	)
Other operating activities		(5,165	)		2,867			(1,154	)
Net cash provided by operating activities		109,640			162,323			103,457
Cash flows used in investing activities:
Capital expenditures		(37,529	)		(36,775	)		(24,800	)
Business acquisitions, net of cash acquired		(4,292	)		(177,658	)		—
Other investing activities		(1,778	)		(1,499	)		(3,424	)
Net cash used in investing activities		(43,599	)		(215,932	)		(28,224	)
Cash flows provided by (used in) financing activities:
Borrowings under senior credit facility — term loan		—			—			20,600
Payments under senior credit facility — term loan		—			(252,450	)		(23,150	)
Borrowings under senior credit facility — line of credit		84,800			230,300			—
Payments under senior credit facility — line of credit		(126,800	)		(136,300	)		—
Borrowings under term loan facility		350,000			—			—
Payments under term loan facility		(875	)		—			—
Payment of debt issuance costs		(13,166	)		(9,612	)		(1,412	)
Retirement of 12% senior notes		—			—			(14,910	)
Proceeds from issuance of 4.625% exchangeable notes		—			100,000			—
Proceeds from issuance of 3.375% exchangeable notes		—			125,000			—
Retirement of 3.375% exchangeable notes		(125,000	)		—			—
Retirement of 7% senior notes		(225,000	)		—			—
Payments on capital lease obligations		(10,301	)		(10,893	)		(16,232	)
Proceeds from seller financing arrangements		428			3,164			1,175
Payments on seller financing arrangements		(484	)		(381	)		(214	)
Proceeds from repayment of stockholder receivable		—			10			63
Proceeds from exercise of stock options		1,196			1,130			2,074
Purchase of common stock		—			(25,029	)		(23,726	)
Net proceeds from termination of common stock call option and warrants		1,555			—			—
Premium on common stock call option		—			(26,992	)		—
Premium from common stock warrants		—			17,820			—
Other financing activities		(189	)		(423	)		(254	)
Net cash (used in) provided by financing activities		(63,836	)		15,344			(55,986	)
Net increase (decrease) in cash		2,205			(38,265	)		19,247
Cash and cash equivalents, beginning of period		17,964			56,229			36,982
Cash and cash equivalents, end of period	$	20,169		$	17,964		$	56,229

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

SUPPLEMENTAL DISCLOSURES

	Fiscal Year Ended
	February 4,		January 29,		January 30,
	2007		2006		2005
	(In thousands)
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest	$	40,066	$	25,351	$	31,688
Income taxes		56		98		1,878
Non-cash investing and financing activities:
Fixed assets acquired under capital leases	$	6,731	$	3,905	$	4,770
Consideration received in business disposition		—		—		7,114

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CSK AUTO CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

							Additional
	Common Stock						Paid-in			Stockholder			Deferred			Accumulated			Total
	Shares			Amount			Capital			Receivable			Compensation			Deficit			Equity
	(In thousands, except share data)
Balances at February 1, 2004		46,497,936		$	465		$	467,563		$	(73	)	$	—		$	(386,458	)	$	81,497
Repurchase and retirement of common stock		(1,574,956	)		(16	)		(23,710	)											(23,726	)
Restricted stock		4,463						1,209						(1,164	)					45
Amortization of deferred compensation														146						146
Recovery of stockholder receivable											63									63
Exercise of options		188,858			2			2,072												2,074
Tax benefit relating to stock option exercises								390												390
Compensation expense, stock options								88												88
Net income																	59,562			59,562
Balances at January 30, 2005		45,116,301			451			447,612			(10	)		(1,018	)		(326,896	)		120,139
Repurchase and retirement of common stock		(1,409,300	)		(14	)		(25,015	)											(25,029	)
Restricted stock		17,731						1,159						(1,288	)					(129	)
Amortization of deferred compensation														571						571
Recovery of stockholder receivable											10									10
Exercise of options		105,590			1			1,129												1,130
Tax benefit relating to stock option exercises								231												231
Compensation expense, stock options								7												7
Warrants and call options, net of tax								1,437												1,437
Net income																	57,790			57,790
Balances at January 29, 2006		43,830,322			438			426,560			—			(1,735	)		(269,106	)		156,157
Restricted stock		28,466			1			(221	)											(220	)
Adoption of SFAS No. 123R (Note 2)								(1,735	)					1,735						—
Exercise of options		91,963			1			1,195												1,196
Compensation expense, stock-based awards								3,048												3,048
Warrants and call options, net of tax								390												390
Discount on senior exchangeable notes, net of tax								4,675												4,675
Net income																	6,264			6,264
Balances at February 4, 2007		43,950,751		$	440		$	433,912		$	—		$	—		$	(262,842	)	$	171,510

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

9

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CSK Auto Corporation is a holding company. At February 4, 2007, 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. In December 2005, we purchased all of the outstanding stock of Murray’s Inc. and its subsidiary, Murray’s Discount Auto Stores, Inc. (collectively herein, “Murray’s”). As of the acquisition date, Murray’s operated 110 automotive parts and accessories retail stores in Michigan, Illinois, Ohio and Indiana — states in which the Company previously had no significant market presence.

As of February 4, 2007, we operated 1,332 stores, including five Pay N Save stores, in 22 states, with our principal concentration of stores in the Western United States. Our stores are known by the following four brand names (referred to collectively as “CSK Stores”):

•  Checker Auto Parts, founded in 1969, with 467 stores in the Southwestern, Rocky Mountain and Northern Plains states and Hawaii;

•  Schuck’s Auto Supply, founded in 1917, with 228 stores in the Pacific Northwest and Alaska;

•  Kragen Auto Parts, founded in 1947, with 506 stores primarily in California; and

•  Murray’s Discount Auto Stores, founded in 1972, with 126 stores in the Midwest.

At February 4, 2007, we operated five value concept retail stores under the Pay N Save brand name in the Phoenix, Arizona metropolitan area, offering primarily tools, hardware, housewares and other household goods, and seasonal items. We closed three of the five Pay N Save stores during the first quarter of our fiscal year ending January 3, 2008 (“fiscal 2007”). The remaining two stores have been converted to clearance centers stocked primarily with product from the former Pay N Save store locations. We concluded that the sales performance of the Pay N Save stores was unsatisfactory and believed that acceptable performance would not be achievable without significant additional investment to increase the store count. The Pay N Save concept provided us with the ability to experiment with new products to determine the level of customer demand before committing to purchase and offer the products in the CSK Stores. This function is now being accommodated with a combination (“combo”) store shopping format in existing stores that are larger than our average store size of 7,500 square feet. At February 4, 2007, we had seven combo stores.

Note 1 — Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of CSK Auto Corporation and Auto for all years presented. In addition, the consolidated financial statements include the accounts of the following wholly-owned subsidiaries of Auto for the periods indicated:

•  Murray’s Inc., an automotive parts and accessories retailer, from December 19, 2005 (the acquisition date) through February 4, 2007. The Murray’s legal corporate entities were merged into Auto in fiscal 2006.

•  Automotive Information Systems, Inc. (“AIS”), a provider of diagnostic vehicle repair information, for fiscal 2004 through the date of the sale of all of our issued and outstanding capital stock of AIS on January 21, 2005 to Mobile Productivity, Inc., (“MPI”).

All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

As more fully explained in Note 8 — Long-Term Debt, the Company has fully and unconditionally guaranteed bank borrowings by Auto. CSKAUTO.COM (the “Subsidiary Guarantor”) has also jointly and severally guaranteed such debt on a full and unconditional basis. CSK Auto Corporation is a holding company and has no other direct subsidiaries or independent assets or operations. The Subsidiary Guarantor is a minor subsidiary and has no

10

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

significant independent operations. Summarized financial statements and other disclosures concerning each of Auto and the Subsidiary Guarantor are not presented because management believes that they are not material to investors. The consolidated amounts in the accompanying financial statements are representative of the combined guarantors and issuer.

The Company reports its financial information as one reportable segment under Statement of Financial Accounting Standards (“SFAS”) No. 131,Disclosures about Segments of Enterprises and Related Information,as its operating segments are its individual stores which meet the criteria for aggregation into one reportable segment set forth in SFAS No. 131.

Fiscal Year

Our fiscal year end is on the Sunday nearest to January 31 of the following calendar year. Fiscal 2006 consisted of 53 weeks and fiscal 2005 and 2004 each consisted of 52 weeks.

Cash Equivalents

Cash equivalents consist of highly liquid investments with maturities of three months or less when purchased.

Fair Value of Financial Instruments

Due to their short-term nature, the carrying value of our cash and cash equivalents, receivables and short-term borrowings approximate fair value. The fair values of long-term debt and derivative financial instruments are disclosed in Note 17 — Fair Value of Financial Instruments.

Derivative Financial Instruments

Our fixed to floating interest rate swap agreement was accounted for in accordance with SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities,as amended, and was recorded on the balance sheet at its fair value. Changes in the fair value of the swap and the hedged item are recognized currently in earnings. Our swap met the criteria to assume no hedge ineffectiveness. The fair value of our swap was determined from current market prices. During the second quarter of fiscal 2006, we terminated the swap agreement in connection with the completion of our fiscal 2006 tender offer for the $225 million of 7% senior subordinated notes. See Note 9 — Derivative Financial Instruments.

Receivables

Receivables are primarily comprised of amounts due from vendors for rebates or allowances and amounts due from commercial sales customers. We record an estimated provision for bad debts for commercial customers based on a percentage of sales and review the allowance quarterly for adequacy. Specific accounts are written off against the allowance when management determines the account is uncollectible.

Concentration of Credit Risk

Financial instruments that potentially subject us to concentration of credit risk consist principally of cash and cash equivalents and trade receivables. Historically, we have not experienced any loss of our cash and cash equivalents due to such concentration of credit risk.

We do not hold collateral to secure payment of our trade accounts receivable. However, management performs ongoing credit evaluations of our customers’ financial condition and provides an allowance for estimated potential losses. Exposure to credit loss is limited to the carrying amount.

Inventory Valuation

Inventories are valued at the lower of cost or market, cost being determined utilizing theFirst-in, First-Out (“FIFO”) method. At each balance sheet date, we adjust our inventory carrying balances by an estimated allowance

11

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

for inventory shrinkage that has occurred since the taking of physical inventories and an allowance for inventory obsolescence, each of which is discussed in greater detail below.

•  We reduce the FIFO carrying value of our inventory for estimated loss due to shrinkage since the most recent physical inventory. Our store shrinkage estimates are determined by dividing the shrinkage loss based on the most recent physical inventory by the sales for that store since its previous physical inventory. That percentage is multiplied by sales since the last physical inventory through period end. Our shrinkage expense for fiscal 2006, 2005 and 2004 was approximately $31.6 million, $28.8 million and $20.8 million, respectively. While the shrinkage accrual is based on recent experience, there is a risk that actual losses may be higher or lower than expected.

•  In certain instances, we retain the right to return obsolete and excess merchandise inventory to our vendors. In situations where we do not have a right to return, we record an allowance representing an estimated loss for the difference between the cost of any obsolete or excess inventory and the estimated retail selling price. Inventory levels and margins earned on all products are monitored monthly. Quarterly, we make an assessment if we expect to sell any significant amount of inventory below cost and, if so, estimate the amount of allowance to record.

At each balance sheet reporting date, we adjust our inventory carrying balances by the capitalization of certain operating and overhead administrative costs associated with purchasing and handling of inventory, an estimation of vendor allowances that remain in ending inventory at period end and an estimation of allowances for inventory shrinkage and obsolescence. The components of ending inventory are as follows ($ in thousands):

	February 4,			January 29,
	2007			2006
FIFO cost	$	562,405		$	559,359
Administrative and overhead costs		28,725			31,679
Vendor allowances		(69,469	)		(67,959	)
Shrinkage		(18,116	)		(12,488	)
Obsolescence		(758	)		(2,084	)
Net inventory	$	502,787		$	508,507

Property and Equipment

Property and equipment, including purchased software, are recorded at cost. Depreciation and amortization are computed for financial reporting purposes utilizing the straight-line method over the estimated useful lives of the related assets, which range from three to 25 years or for leasehold improvements and property under capital leases, the shorter of the lease term or the economic life. Maintenance and repairs are charged to earnings when incurred. When property and equipment is retired or sold, the net book value of the asset, reduced by any proceeds, is charged to gain or loss. For stores in which we are a seller-lessee and do not recover substantially all construction costs, we record the costs in property and equipment and amounts funded by the lessor are recorded as a debt obligation in the accompanying balance sheet.

Internal Software Development Costs

Certain internal software development costs are capitalized and amortized over the life of the related software. Amounts capitalized during fiscal 2006, 2005 and 2004 were $1.8 million, $1.5 million and $2.9 million, respectively. Accumulated amortization as of February 4, 2007 and January 29, 2006 was $4.7 million and $4.6 million, respectively.

Goodwill and Other Intangible Assets

In accordance with SFAS No. 142,Goodwill and Other Intangible Assets,goodwill is no longer amortized, but instead is assessed for impairment at least annually. Other intangible assets consist of: (1) leasehold interests

12

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

representing the net present value of the excess of the fair rental value over the respective contractual rent of facilities under operating leases acquired in business combinations; (2) tradenames and trademarks; and (3) customer relationship intangibles. Amortization expense is computed on a straight-line basis over the respective life of the intangibles. See Note 7 — Goodwill and Other Intangible Assets for the impact of this amortization on the statement of operations.

Impairment of Other Long-Lived Assets

Long-lived assets and identifiable intangible assets to be held and used or disposed of are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event assets are impaired; losses are recognized based on the excess carrying amount over the estimated fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or the fair market value less selling costs.

Lease Obligations

We lease all but one of our store locations in addition to our distribution centers, office space and most vehicles and equipment. At the inception of the lease, we evaluate each agreement to determine whether the lease will be accounted for as an operating or capital lease. The term of the lease used for this evaluation includes renewal option periods only in instances in which the exercise of the renewal option can be reasonably assured and failure to exercise such option would result in an economic penalty. Certain leases contain rent escalation clauses and rent holidays, which are recorded on a straight-line basis over the lease term with the difference between the rent paid and the straight-line rent recorded as a deferred rent liability. Lease incentive payments received from landlords are recorded as deferred rent liabilities and are amortized on a straight-line basis over the lease term as a reduction in rent. Certain leases contain provisions that require additional rental payments based upon a specified sales volume, which are accrued as the liabilities are incurred.

Self-Insurance Reserves

We purchase third-party insurance for workers’ compensation, automobile, product and general liability claims that exceed a certain dollar threshold. However, we are responsible for the payment of claims under these insured limits. In estimating the obligation associated with reported claims and incurred but not reported (“IBNR”) claims, we utilize independent third-party actuaries. These actuaries utilize historical data to project the future development of reported claims and estimate IBNR claims. Loss estimates are adjusted based upon actual claims settlements and reported claims. Although we do not expect the amounts ultimately paid to differ significantly from our estimates, self-insurance reserves could be affected if future claim experience differs significantly from the historical trends and actuarial assumptions. Our self-insurance reserves approximated $23.5 million and $20.8 million at February 4, 2007 and January 29, 2006, respectively, and are included with current liabilities in the accompanying consolidated balance sheets.

Revenue Recognition

We recognize sales upon the delivery of products to our customers, which generally occurs at our retail store locations. For certain commercial customers, we also deliver products to customer locations. All retail and commercial sales are final upon delivery of products. However, as a convenience to the customer and as typical of most retailers, we will accept merchandise returns. We generally limit the period of time within which products may be returned to 60 days and require returns to be accompanied by original packaging and a sales receipt. We record an estimate for sales returns based on historical experience and record this estimate as a reduction of net sales.

We recognize as sales the fair value of recyclable auto parts we receive as consideration from customers that purchase a new auto part. The Company refers to a recyclable auto part, which may or may not have been purchased from our stores, as a “core.” The Company returns these cores to vendors for cash consideration or to settle an obligation to return a given number of cores to vendors in situations where the Company does not pay for the core component of the inventory acquisition costs. The Company charges customers who purchase a new auto part a

13

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

specified amount for a core, which exceeds the value of the core, and refunds to customers that same amount if a used core is returned at the point of sale of the new part or upon returning the used part to the store at a later date. If the customer does not return a core at point of sale, the amount charged the customer which exceeds the value of the new core is also recognized as sales but is subject to a right of return at the point of sale and included in our sales return allowance for merchandise returns described above.

The Company occasionally sponsors mail-in rebate programs to stimulate sales of particular products. At any one time, the Company may have several of these programs in effect. The Company estimates, based on historical experience, the amount of rebates that will be paid to customers and reduces net sales for the expected rebate at the time of sale of the product subject to the rebate. Estimates are adjusted to actual redemptions at conclusion of the redemption period.

Vendor Allowances and Cost of Sales

Cost of sales includes product cost, net of earned vendor rebates, discounts and allowances associated with our purchasing activities and promotional activities with certain vendors. We recognize such allowances as a reduction of our cost of inventory in accordance with Emerging Issues Task Force (“EITF”)No. 02-16,Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor.Based on EITFNo. 02-16, allowances provided by our vendors are presumed to be a reduction in the costs of purchasing inventories (to be recognized in inventory and cost of sales). Amounts recognized are based on written contracts with vendors and the Company enters into hundreds of contracts with allowances each year. Contractual disputes and misunderstandings can occur with vendors with respect to specific aspects of a vendor’s program which could result in adjustments to allowances the Company recognizes. The Company adjusts its vendor allowance recognition for disputes when probable and reasonably estimable. Certain of our agreements have several year terms, thus requiring recognition over an extended period.

Warranty

The Company or the vendors supplying its products provide the Company’s customers limited warranties on certain products that range from 30 days to lifetime warranties. In most cases, the Company’s vendors are responsible for warranty claims. Warranty costs relating to merchandise sold under warranty not covered by vendors are estimated and recorded as warranty obligations at the time of sale based on historical experience and recent trends. These obligations are recorded as a component of accrued expenses. The Company quarterly assesses the adequacy of its recorded warranty liability and adjusts the liability and cost of sales as necessary.

The following table reflects the changes in our warranty reserves ($ in thousands):

	Fiscal Year Ended
	February 4,			January 29,			January 30,
	2007			2006			2005
Warranty reserves, beginning of period	$	2,580		$	2,918		$	3,269
Provision for warranty		3,428			963			881
Allowances from vendors		6,067			5,841			5,851
Reserves utilized		(8,167	)		(7,142	)		(7,083	)
Warranty reserves, end of period	$	3,908		$	2,580		$	2,918

Store Closing Costs

If a store location does not meet our performance standards, it is considered for closure, even if we are contractually committed for future rental costs. We provide a discounted allowance for estimated lease costs to be incurred subsequent to store closure. We establish this allowance based on an assessment of market conditions for rents and include assumptions for vacancy periods and sublease rentals.

14

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

There are several significant assumptions that underlie the estimates inherent in the closed store reserve, including: (1) real estate broker estimates for vacancy periods and estimated sublease rates based on the broker’s experience and expertise, and (2) estimates for occupancy expenses based on historical averages and, in the case of real estate taxes, are subject to changes by taxing authorities. Accordingly, we continuously review these assumptions and revise the reserve as necessary.

In addition, there are certain assumptions that are sensitive to deviations and could produce actual results significantly different from management’s original estimates. These assumptions may be revised due to the following issues: (1) national or regional economic conditions that can shorten or lengthen vacancy periods; (2) changes in neighborhoods surrounding store locations resulting in longer than anticipated vacancy periods; (3) changing subtenant needs resulting in functional obsolescence of store locations; and (4) subtenant defaults or bankruptcies resulting in vacant properties. Historically, we have recorded revisions in estimates to the closed store reserve that have resulted from these issues. These revisions usually result from overall longer vacancy periods on store locations and realized sublease rates lower than originally anticipated.

Advertising

Advertising costs are expensed as incurred. In accordance with EITFNo. 02-16, cooperative advertising arrangements are considered a reduction of product costs, unless we are specifically required to substantiate costs incurred to the vendor and do so in the normal course of business. Advertising expense for fiscal 2006, 2005 and 2004 totaled $55.7 million, $50.4 million and $49.9 million, respectively.

Preopening Costs

Preopening expenses, which consist primarily of payroll and occupancy costs, are expensed as incurred.

Income Taxes

Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts (temporary differences) at each year-end based on enacted tax laws and statutory rates applicable to the period in which the temporary differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Income tax expense includes both taxes payable for the period and the change during the period in deferred tax assets and liabilities. Income tax expense reflects our best estimates and assumptions regarding, among other things, the level of future taxable income, interpretation of the tax laws, and tax planning. Future changes in tax laws, changes in projected levels of taxable income, and tax planning could affect the effective tax rate and tax balances recorded.

Earnings per Share

SFAS No. 128,Earnings Per Share(“EPS”) requires earnings per share to be computed and reported as both basic EPS and diluted EPS. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income by the weighted average number of common shares and dilutive common stock equivalents (convertible notes and interest on the notes, stock awards and stock options) outstanding during the period. Dilutive EPS reflects the potential dilution that could occur if options to purchase common stock were exercised for shares of common stock. The following is a

15

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

reconciliation of the number of shares (denominator) used in the basic and diluted EPS computations ($ and share data in thousands):

	Fiscal Year Ended
	February 4,		January 29,		January 30,
	2007		2006		2005
Numerator for basic and diluted earnings per share:
Net income	$	6,264	$	57,790	$	59,562
Denominator for basic earnings per share:
Weighted average shares outstanding (basic)		43,877		44,465		45,713
Denominator for diluted earnings per share:
Weighted average shares outstanding (basic)		43,877		44,465		45,713
Effect of dilutive securities		252		347		289
Weighted average shares outstanding (diluted)		44,129		44,812		46,002
Shares excluded as a result of anti-dilution:
Stock options		2,029		790		482

Incremental net shares for the exchange feature of the $100.0 million 63/4% senior exchangeable notes due 2025 will be included in our future diluted earnings per share calculations for those periods in which our average common stock price exceeds $16.50 per share.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Legal Matters

We currently and from time to time are involved in litigation incidental to the conduct of our business, including but not limited to asbestos and similar product liability claims, slips and falls 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 an 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 these legal claims incidental to the conduct of our business, individually or in the aggregate, will result in liabilities material to our consolidated financial position, results of operations or cash flows. However, if our estimates related to these contingent liabilities are incorrect, the future results of operations for any particular fiscal quarter or year could be materially adversely affected.

In addition to the litigation that is incidental to our business, we are also subject to the other litigation and the SEC investigation that are described in Note 16 — Legal Matters. Although these matters are in their early stages and we cannot predict their outcome, an adverse outcome in any of them could have a material adverse effect on our results of operations, financial position or cash flows.

Note 2 — Accounting Change for Share-Based Compensation

Effective January 30, 2006, the Company adopted SFAS No. 123R,Share-Based Payment,using the modified-prospective method and began recognizing compensation expense for its share-based compensation plans based on the fair value of the awards. Share-based payments include stock option grants, restricted stock and a share-based compensation plan under the Company’s long-term incentive plan (the “LTIP”). Prior to January 30, 2006, the Company accounted for its stock-based compensation plans as prescribed by Accounting Principles Board (“APB”)

16

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Opinion No. 25,Accounting for Stock Issued to Employees. In accordance with the modified-prospective transition method of SFAS No. 123R, the Company has not restated prior periods.

Stock Options

In the fourth quarter of 2005, the Board of Directors approved the acceleration of the vesting of all “underwater” stock options (those stock options previously granted with exercise prices above $15.90, the market price of the Company’s stock on January 27, 2006) previously awarded to employees and executive officers. Option awards not “underwater” at January 27, 2006 and granted subsequent to the Board’s action are not included in the acceleration and will vest equally over the service period established in the award, typically three years. The primary purpose of the accelerated vesting was to enable the Company to avoid recognizing future compensation expense associated with these options upon the adoption of SFAS No. 123R in the first quarter of fiscal 2006. The Company’s Board of Directors took this action with the belief that it was in the best interest of shareholders as it would reduce the Company’s reported non-cash compensation expense in future periods.

SFAS No. 123R requires share-based compensation expense recognized since January 30, 2006 to be based on the following: a) grant date fair value estimated in accordance with the original provisions of SFAS No. 123,Accounting for Stock-Based Compensation, for unvested options granted prior to the adoption date; and b) grant date fair value estimated in accordance with the provisions of SFAS No. 123R for unvested options granted subsequent to the adoption date. The Company uses the Black-Scholes option-pricing model to value all options, and the straight-line method to amortize this fair value as compensation cost over the requisite service period. Total share-based compensation expense included in operating and administrative expense in the accompanying consolidated statements of operations for the fiscal year ended February 4, 2007 was approximately $2.0 million for the unvested options granted prior to the adoption date as well as stock options granted during fiscal 2006. The remaining unrecognized compensation cost related to unvested awards as of February 4, 2007 (net of estimated forfeitures) was $4.9 million and the weighted-average period of time over which this cost will be recognized is 3 years. Also in fiscal 2006, the Company extended the expiration dates on certain stock options due to expire during a period in which the Company prohibited option exercises due to filing delinquencies that required we suspend use of the relevantForm S-8 registration statements, resulting in approximately $0.4 million in operating and administrative expense. A summary of the Company’s stock option activity and weighted average exercise price is provided under Note 11 — Employee Benefit Plans.

The fair value of each stock option grant is estimated on the date of the grant using the Black-Scholes model and is based on the following assumptions:

	Fiscal Year
	2006	2005	2004
Dividend yield	0%	0%	0%
Risk free interest rate	4.45%	3.86% - 4.40%	3.07% - 3.82%
Expected life of options	4.5 years	6 years	6 years
Expected volatility	38.03%	25% - 33%	27% - 36%

Dividend Yield — The Company has not made any dividend payments nor does it have plans to pay dividends in the foreseeable future. An increase in the dividend yield will decrease compensation expense.

Risk-Free Interest Rate — This is the U.S. Treasure rate for the date of the grant having a term equal to the expected life of the option. An increase in the risk-free interest rate will increase compensation expense.

Expected Life — This is the period of time over which the options granted are expected to remain outstanding and is based on the mid-point option term under Staff Accounting Bulletin No. 107,Share Based Payment.

Expected Volatility — The Company uses actual historical changes in the closing market price of our stock to calculate volatility based on the expected life of the option as it is management’s belief that this is the best indicator of future volatility. An increase in the expected volatility will increase compensation expense.

17

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Under SFAS No. 123R forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.

Restricted Stock

The Company has in effect a performance incentive plan for the Company’s senior management under which the Company awards shares of restricted stock that vest equally over a three-year period. Shares are forfeited when an employee ceases employment. For accounting purposes, restricted stock is valued at the grant date fair value of the common stock. The Company’s accounting for restricted stock was not affected by the adoption of SFAS 123R. At January 29, 2006, the Company had $1.7 million of deferred compensation costs related to unvested restricted stock included in stockholders’ equity. In accordance with SFAS No. 123R, the deferred compensation balance of $1.7 million as of January 29, 2006 was reclassified to additional paid-in capital. Total share-based compensation expense for restricted stock included in operating and administrative expense in the accompanying consolidated statements of operations for the fiscal 2006, 2005 and 2004 was approximately $0.6 million, $0.6 million and $0.1 million, respectively. The remaining unrecognized compensation cost related to unvested awards as of February 4, 2007 was $1.7 million, and the weighted-average period of time over which this cost will be recognized is approximately two years. A summary of the Company’s restricted stock activity and weighted average grant date price is provided under Note 11 — Employee Benefit Plans.

Long-Term Incentive Plan

In fiscal 2005, the Compensation Committee of our Board of Directors adopted the CSK Auto Corporation LTIP. See Note 11 — Employee Benefit Plans. For accounting purposes, the awards granted under the LTIP are considered to be service-based, cash settled stock appreciation rights (“SARs”). The award is classified as a liability as the LTIP requires the units to be paid in cash. The Company does not have the option to pay the participant in any other form. While the amount of cash, if any, that will ultimately be received by the participant is not known until the end of the measuring period, the only condition that determines whether the award is vested is whether the employee is still employed by the Company (i.e., completes the required service) at the payment date. Since the amount of cash to be received by the participant is indeterminate at the grant date, SARs are subject to variable plan accounting treatment prior to adoption of SFAS No. 123R whereby the intrinsic value of the award is recognized each period (multiplied by the related percentage of service rendered). FASB Interpretation No. 28,Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans(“FIN 28”) requires that the compensation cost for such awards be recognized over the service period for each separately vesting tranche of award as though the award were, in substance, multiple awards.

The Company concluded that, for purposes of initial recognition, the initial award date occurred on June 28, 2005, as both the number of units that each initial participant was entitled to and the exercise price were known by such initial participants at that date. However, since the Company’s stock price did not exceed $20 per share at any time from the measurement date through the end of fiscal 2005, no compensation cost was recognized, and no pro-forma expense for this award is reflected in the SFAS No. 123 disclosures.

The LTIP units are classified as a liability award under SFAS No. 123R, and as such, must be measured at fair value at the grant date and recognized as compensation cost over the service period in accordance with FIN 28. The modified prospective transition rules under SFAS No. 123R require that for an outstanding instrument that previously was classified as a liability and measured at intrinsic value, an entity should recognize the effect of initially measuring the liability at its fair value, net of any related tax effect, as the cumulative effect of a change in accounting principle. At the beginning of fiscal 2006, the Company recorded $1.0 million, net of $0.6 million income tax benefit, as a cumulative effect of a change in accounting principle for the LTIP fair value liability under SFAS No. 123R upon adoption. For the fiscal year ended February 4, 2007, the Company recognized $0.3 million of expense related to the LTIP units. At February 4, 2007, the Company had recorded a liability of $1.9 million related to LTIP units and had $1.5 million of unrecognized compensation cost related to LTIP units. As a liability based instrument, the LTIP awards will be remeasured at each balance sheet date, such that the net compensation expense

18

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

recorded over the full four-year vesting period of the LTIP units will equal the cash payments, if any, made by the Company to the LTIP participants.

Total stock-based compensation expense included in operating and administrative expenses in the Company’s statement of operations for the year ended February 4, 2007 was $3.4 million, and the Company recognized a corresponding income tax benefit of approximately $1.4 million. In addition, the Company incurred $1.6 million ($1.0 million net of income tax benefit) of transition expense upon adoption of SFAS 123R, which is shown as a cumulative effect of a change in accounting principle. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to options granted under the Company’s stock plans for the fiscal years ended January 29, 2006 and January 30, 2005 (in thousands, except per share data):

	Fiscal Year Ended
	January 29,			January 30,
	2006			2005
Net income — as reported	$	57,790		$	59,562
Add: Stock-based employee compensation expense in reported net income, net of related income taxes		351			142
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related income taxes		(4,535	)		(990	)
Net income — pro forma	$	53,606		$	58,714
Earnings per share — basic:
As reported	$	1.30		$	1.30
Pro forma	$	1.21		$	1.28
Earnings per share — diluted:
As reported	$	1.29		$	1.29
Pro forma	$	1.20		$	1.28
As reported shares
Basic		44,465			45,713
Diluted		44,812			46,002
Pro forma shares used in calculation:
Basic		44,465			45,713
Diluted		44,823			45,829

SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow rather than as an operating cash flow. This requirement reduces net operating cash flows and increases net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on when employees exercise stock options and the current market price), the amounts of operating cash flows recognized for such excess tax deductions for stock option exercises were $0.2 million and $0.4 million in fiscal 2005 and 2004, respectively.

In November 2005, the FASB issued FASB Staff Position (“FSP”)FAS 123R-3,Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards. This FSP requires an entity to follow either the transition guidance for the additionalpaid-in-capital pool as prescribed in SFAS 123R, or the alternative method as described in the FSP. An entity that adopts SFAS 123R using the modified prospective application transition method may make a one-time election to adopt the transition method described in this FSP. We have elected to calculate the additionalpaid-in-capital pool as prescribed in the FSP (referred to as the “short-cut” method) effective with our adoption of SFAS 123R.

19

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 3 — Recent Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155,Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140. This statement simplifies accounting for certain hybrid instruments currently governed by SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, by allowing fair value remeasurement of hybrid instruments that contain an embedded derivative that otherwise would require bifurcation. SFAS No. 155 also eliminates the guidance in SFAS No. 133 Implementation Issue No. D1,Application of Statement 133 to Beneficial Interests in Securitized Financial Assets,which provides such beneficial interests are not subject to SFAS No. 133. SFAS No. 155 amends SFAS No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a Replacement of FASB Statement No. 125,by eliminating the restriction on passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for financial instruments acquired or issued after the beginning of our fiscal year 2007. The Company does not expect the adoption of SFAS No. 155 to have a material impact on its financial condition, results of operations or cash flows.

In March 2006, the FASB issued SFAS No. 156,Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140. SFAS No. 156 amends SFAS No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 is effective for fiscal years beginning after September 15, 2006. The Company does not expect the adoption of SFAS No. 156 to have a material impact on its financial condition, results of operations or cash flows.

In June 2006, the FASB issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes(“FIN 48”). The interpretation clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements in accordance with SFAS No. 109,Accounting for Income Taxes.FIN 48 will be effective for the Company beginning in fiscal 2007. The Company has not determined the effect, if any, the adoption of FIN 48 will have on the Company’s financial position and results of operations.

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108,Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,(“SAB 108”). SAB 108 was issued in order to eliminate the diversity in practice surrounding how public companies quantify financial statement misstatements. SAB 108 requires that registrants quantify errors using both a balance sheet and income statement approach and evaluate whether either approach results in a misstated amount that, when all relevant quantitative and qualitative factors are considered, is material. SAB 108 is effective for financial statements covering the first fiscal year ending after November 15, 2006. The Company adopted SAB 108 for the year ended February 4, 2007 with no impact on its consolidated financial condition, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements,which clarifies the definition of fair value, establishes a framework for measuring fair value within generally accepted accounting principles and expands the disclosures on fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of SFAS No. 157 to have a material impact on its financial condition, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities,which permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of SFAS No. 159.

Note 4 — Business Acquisition

On December 19, 2005, we acquired all of the outstanding stock of Murray’s, a private company headquartered in Belleville, Michigan, that operated 110 automotive parts and accessories retail stores in Michigan, Illinois, Ohio and Indiana. The purchase price was $180.9 million. As of January 29, 2006, $2.8 million of the purchase price was recorded in other accrued liabilities, of which all was paid during fiscal 2007. The Murray’s acquisition complemented our existing operations and expanded our markets served from 19 to 22 states. The acquisition was

20

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

funded from borrowings under a $325.0 million senior secured asset-based revolving credit facility and from the issuance of the 63/4% senior exchangeable notes. See Note 7 — Goodwill and Other Intangible Assets.

This transaction has been accounted for in accordance with SFAS No. 141,Business Combinations,and accordingly the financial position and results of operations have been included in our operations since the date of acquisition. In accordance with SFAS No. 141, the purchase price was allocated to the fair value of the assets acquired and liabilities assumed, including identifiable intangible assets. The allocation of purchase price resulted in an inventory fair value adjustment of $2.8 million, which was expensed to cost of sales in fiscal 2005 and 2006 corresponding to the periods in which the inventory was sold. The excess of purchase price over the fair value of net assets acquired resulted in $104.5 million of non-tax deductible goodwill primarily related to the anticipated future earnings and cash flows of the Murray’s retail stores, as well as cost reductions management expects as a result of integrating administrative functions (including operations, finance, human resources, purchasing and information technology). Of the $59.1 million of identifiable intangible assets, $49.4 million was assigned to Murray’s trade name and trademarks (with a life of 30 years), $9.3 million was assigned to leasehold interests (with an average life of 17 years) and $0.4 million was assigned to customer relationships (with a life of 10 years). In addition, we recorded a $7.5 million liability for leasehold interests for operating leases that had rental commitments in excess of current market conditions (with an average life of 18 years).

The final purchase price allocation recorded in fiscal 2005 was as follows ($ in thousands):

Cash and cash equivalents	$	480
Receivables		2,963
Inventories		51,363
Deferred income taxes		3,628
Prepaids and other assets		2,872
		61,306
Property and equipment		20,041
Trade name and trademarks		49,400
Customer relationships		370
Leasehold interests		9,324
Goodwill		104,541
Other long-term assets		65
Total assets acquired		245,047
Accounts payable and accrued liabilities		36,494
Unfavorable leasehold interests		7,482
Deferred income taxes		19,320
Other liabilities		804
Total liabilities assumed		64,100
Fair value of net assets acquired	$	180,947

Employee termination and relocation costs have been recorded in the above purchase price allocation. As of the acquisition date, the Company began to formulate a plan to terminate or relocate certain Murray’s employees. The Company has finalized the appropriate staffing levels in Murray’s departments (including operations, finance, human resources, purchasing and information technology) and the experience levels required to perform certain general and administrative functions, and paid approximately $1.2 million in severance and relocation costs in fiscal 2006. The Company did not close any Murray’s stores as a result of the acquisition.

In August 2006, we purchased a franchised Murray’s store for approximately $1.8 million. Net of liabilities assumed, the Company paid approximately $1.5 million in cash and recorded $1.4 million in goodwill.

21

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 5 — Receivables

Accounts receivable consist of the following ($ in thousands):

	February 4,			January 29,
	2007			2006
Amounts due under vendor allowance programs and cooperative advertising arrangements	$	24,122		$	10,587
Trade receivables from commercial and other customers		17,175			14,614
Landlord, subtenant receivables, and other		2,994			5,096
Gross receivables		44,291			30,297
Allowance for doubtful accounts		(393	)		(436	)
Net accounts receivable	$	43,898		$	29,861

We reflect amounts to be paid or credited to us by vendors as receivables. Pursuant to contract terms, we have the right to offset vendor receivables against corresponding accounts payable, thus minimizing the risk of non-collection of these receivables.

Note 6 — Property and Equipment

Property and equipment are comprised of the following ($ in thousands):

	February 4,			January 29,
	2007			2006			Estimated Useful Life
Land	$	348		$	348
Buildings		15,251			14,198		15 - 25 years
Leasehold improvements		159,070			146,690		Shorter of lease term or useful life
Furniture, fixtures and equipment		168,845			164,745		3 - 10 years
Property under capital leases		97,974			94,220		5 - 15 years or life of lease
Purchased software		10,829			9,141		5 years
		452,317			429,342
Less: accumulated depreciation and amortization		(277,908	)		(255,230	)
Property and equipment, net	$	174,409		$	174,112

Accumulated amortization of property under capital leases totaled $73.1 million and $67.4 million at February 4, 2007 and January 29, 2006, respectively.

We evaluate the carrying value of long-lived assets on an annual basis to determine whether events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and an impairment loss should be recognized. Such evaluation is based on the expected utilization of the related asset and the corresponding useful life.

Note 7 — Goodwill and Other Intangible Assets

We completed our annual goodwill impairment test as of February 4, 2007, the last day of our fiscal year, and we determined that no impairment of goodwill existed. Under SFAS No. 142, the Company’s stores, including the recently acquired Murray’s stores, are considered components with similar economic characteristics which can be aggregated into one reporting unit for goodwill impairment testing.

Our intangible assets, excluding goodwill, consist of favorable leasehold interests, license agreement, trade names and trademarks, and customer relationship intangibles resulting from business acquisitions. Amortization

22

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

expense related to intangible assets is computed on a straight-line basis over the respective useful lives. Leasehold interests associated with store closures are written off at the time of closure.

In August 2006, we purchased a franchised Murray’s store which resulted in $1.4 million of goodwill. See Note 4 — Business Acquisition.

Of the $59.1 million of identifiable intangible assets resulting from the fiscal 2005 acquisition of Murray’s, $49.4 million was assigned to Murray’s trade name and trademarks (with a life of 30 years), $9.3 million was assigned to leasehold interests asset (with an average life of 17 years) and $0.4 million was assigned to customer relationships (with a life of 10 years). The excess purchase price over identifiable tangible and intangible assets was approximately $104.5 million, which was recorded as goodwill. See Note 4 — Business Acquisition.

On January 21, 2005, the Company sold its subsidiary, AIS, a provider of diagnostic vehicle repair information, to MPI. As a result of the sale, the Company received a note receivable with a fair value of approximately $7.1 million, and MPI granted a licensing agreement to us which was valued at approximately $4.4 million and is being amortized over seven years.

The changes in intangible assets, including goodwill, for fiscal 2006 are as follows ($ in thousands):

	Carrying											Carrying
	Value as of											Value as of
	January 29,											February 4,
	2006			Additions		Amortization			Adjustments			2007
Amortized intangible assets:
Leasehold interests	$	28,556		$	—	$	—		$	99		$	28,655
Accumulated amortization		(10,111	)		—		(1,952	)		(99	)		(12,162	)
		18,445			—		(1,952	)		—			16,493
License agreement		4,417			—		—			—			4,417
Accumulated amortization		(631	)		—		(643	)		—			(1,274	)
		3,786			—		(643	)		—			3,143
Tradenames and trademarks		49,400			—		—			—			49,400
Accumulated amortization		(190	)		—		(1,668	)		—			(1,858	)
		49,210			—		(1,668	)		—			47,542
Customer relationships		370			—		—			—			370
Accumulated amortization		(4	)		—		(37	)		—			(41	)
		366			—		(37	)		—			329
Amortized intangibles, net		71,807			—		(4,300	)		—			67,507
Unamortized intangible assets:
Goodwill		223,507			1,430		—			—			224,937
Total intangible assets, net	$	295,314		$	1,430	$	(4,300	)	$	—		$	292,444

23

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Estimated amortization expense relating to intangible assets for the next five years is listed below ($ in thousands):

Fiscal 2007	$	4,204
Fiscal 2008		4,127
Fiscal 2009		4,050
Fiscal 2010		3,993
Fiscal 2011		3,947
	$	20,321

Note 8 — Long-Term Debt

Overview

Outstanding debt, excluding capital leases, is as follows ($ in thousands):

	February 4,		January 29,
	2007		2006
Term loan facility	$	349,125	$	—
Senior credit facility		52,000		94,000
63/4% senior exchangeable notes, carrying balance decreased in fiscal 2006 by $6.9 million discount in accordance with EITFNo. 06-6		93,061		100,000
7% senior subordinated notes, carrying balance decreased in fiscal 2005 by $6.7 million relating to SFAS No. 133 hedge accounting adjustment		—		218,279
33/8% senior exchangeable notes		—		125,000
Seller financing arrangements		13,279		12,709
Total debt		507,465		549,988
Less: Current portion of term loan facility		3,478		—
Senior credit facility(1)		52,000		42,000
Current maturities of seller financing arrangements		620		465
Total debt (non-current)	$	451,367	$	507,523

(1) This portion of the revolving line of credit represents the expected paydown in the following12-month period.

Fiscal 2006 Refinancing Transactions

Our inability to timely file our fiscal 2005 consolidated financial statements with the SEC as a result of both the Audit Committee-led investigation and the need to restate our financial statements created potential default implications under our borrowing agreements. As a result, in fiscal 2006, we completed a tender offer for our 7% senior subordinated notes (“7% Notes”), in which we repurchased $224.96 million of the 7% Notes, and we repaid all $125.0 million of our 33/8% senior exchangeable notes (“33/8% Notes”) upon the acceleration of their maturity. We entered into a $350.0 million term loan facility (“Term Loan Facility”), proceeds from which were used to pay the tender offer consideration for the 7% Notes and to repay the 33/8% Notes upon their acceleration. We also entered into a waiver with respect to our senior secured revolving line of credit (“Senior Credit Facility”) and a supplemental indenture to the indenture under which our 45/8% senior exchangeable notes (“43/8% Notes”) were originally issued.

Fiscal 2005 Financing Transactions

In fiscal 2005, we completed the following transactions: (1) the issuance of $125.0 million of 33/8% Notes and the purchase of a call option and issuance of a warrant for shares of our common stock in connection with the

24

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

issuance of the 33/8% Notes, (2) the establishment of a $325.0 million Senior Credit Facility, and (3) the issuance of $100.0 million of 45/8% Notes. We paid premiums of $27.0 million for the call option and received premiums of $17.8 million from the sale of the warrants. We used the proceeds from the issuance of the 33/8% Notes, borrowings under the Senior Credit Facility and cash on hand to repay in full $251.2 million of indebtedness outstanding under our previously existing senior credit facility (including accrued and unpaid interest), repurchase approximately $25.0 million of our common stock and pay fees and expenses directly related to the transactions. We used the proceeds from the issuance of the 45/8% Notes, borrowings under the Senior Credit Facility and cash on hand to acquire Murray’s in December 2005 for approximately $180.9 million.

Term Loan Facility

In order to repay the 7% Notes and the 33/8% Notes described below, we entered into a $350.0 million Term Loan Facility in June 2006. The loans under the Term Loan Facility (“Term Loans”) bear interest at a base rate or the LIBOR rate, plus a margin that will fluctuate depending upon the rating of the Term Loans. At February 4, 2007, the interest rate was 8.375%. The Term Loans are guaranteed by the Company and CSKAUTO.COM, Inc., a wholly owned subsidiary of Auto. The Term Loans are secured by a second lien security interest in certain of our assets, primarily inventory and receivables, and by a first lien security interest in substantially all of our other assets. The Term Loans call for repayment in consecutive quarterly installments, which began on December 31, 2006, in an amount equal to 0.25% of the aggregate principal amount of the Term Loans, with the balance payable in full on the sixth anniversary of the closing date, or June 30, 2012. Costs associated with the Term Loan Facility were approximately $10.7 million and, beginning June 30, 2006, are being amortized to interest expense following the interest method over the six-year term of the facility.

The Term Loan Facility contains, among other things, limitations on liens, indebtedness, mergers, disposition of assets, investments, payments in respect of capital stock, modifications of material indebtedness, changes in fiscal year, transactions with affiliates, lines of business, and swap agreements. Auto is also subject to financial covenants under the Term Loan Facility measuring its performance against standards set for leverage and fixed charge coverage. See Note 19 — Subsequent Events.

Senior Credit Facility

At February 4, 2007 and January 29, 2006, Auto had a $325.0 million senior secured revolving line of credit. Auto is the borrower under the agreement and it is guaranteed by the Company and CSKAUTO.COM, Inc. Borrowings under the Senior Credit Facility bear interest at a variable interest rate based on one of two indices, either (i) LIBOR plus an applicable margin that varies (1.25% to 1.75%) depending upon Auto’s average daily availability under the agreement measured using certain borrowing base tests, or (ii) the Alternate Base Rate (as defined in the agreement). The Senior Credit Facility matures in July 2010.

During fiscal 2006, we entered into a waiver under the Senior Credit Facility to allow us until June 13, 2007 to file certain periodic reports with the SEC. Costs associated with the waiver were approximately $1.6 million, were recorded as deferred financing fees in fiscal 2006, and are being amortized through July 2010. See Note 19 — Subsequent Events.

Availability under the Senior Credit Facility is limited to the lesser of the revolving commitment of $325.0 million and a borrowing base limitation. The borrowing base limitation is based upon a formula involving certain percentages of eligible inventory and eligible accounts receivable owned by Auto. As a result of the limitations imposed by the borrowing base formula, at February 4, 2007, Auto could only borrow up to an additional $140.0 million of the $325.0 million facility in addition to the $52.0 million already borrowed under the Senior Credit Facility at an average interest rate of approximately 6.875%, and $34.1 million of letters of credit outstanding under this facility as of February 4, 2007. At each balance sheet date, we classify, as a current liability, balances outstanding under the revolving portion of the Senior Credit Facility we expect to repay during the following 12 months. Loans under the Senior Credit Facility are collateralized by a first priority security interest in certain of our assets, primarily inventory and accounts receivable, and a second priority security interest in certain of our other assets. The Senior Credit Facility contains negative covenants and restrictions on actions by Auto and its

25

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

subsidiaries including, without limitation, restrictions and limitations on indebtedness, liens, guarantees, mergers, asset dispositions, investments, loans, advances and acquisitions, payment of dividends, transactions with affiliates, change in business conducted and certain prepayments and amendments of indebtedness. In addition, since June 16, 2006, Auto has been required to maintain a minimum 1:1 Fixed Charge Coverage Ratio (as defined in the agreement).

In the second quarter of fiscal 2005, in connection with the early termination of our prior senior credit facility, consisting of a $255.0 million term loan and a $145.0 million revolving credit facility, we recorded a $1.6 million loss on debt retirement resulting from the write-off of certain deferred financing fees.

45/8% Notes (Now 63/4% Notes)

In June 2006, we commenced a cash tender offer and consent solicitation with respect to our $100.0 million of 45/8% Notes. We did not purchase any notes in the tender offer because holders of a majority of the outstanding 45/8% Notes did not tender in the offer prior to its expiration date. We later obtained the consent of the holders of a majority of the 45/8% Notes to enter into a supplemental indenture to the indenture under which the 45/8% Notes were originally issued that (i) waived any default arising from Auto’s failure to file certain financial information with the Trustee for the notes, (ii) exempted Auto from compliance with the SEC filing covenants in the indenture until June 30, 2007, (iii) increased the interest rate of the notes to 63/4% per year until December 15, 2010 and 61/2% per year thereafter, and (iv) increased the exchange rate of the notes from 49.8473 shares of our common stock per $1,000 principal amount of notes to 60.6061 shares of our common stock per $1,000 principal amount of notes (hereinafter, these notes are referred to as the “63/4% Notes”). All other terms of the indenture are unchanged. Costs associated with the tender offer and supplemental indenture were approximately $0.5 million and were recognized in operating and administrative expenses in the second quarter of fiscal 2006. Under the registration rights agreement (see below), additional interest of 25 basis points began to accrue on the 63/4% Notes in March 2006 and increased to 50 basis points in June 2006. In total, we incurred approximately $1.5 million in additional interest expense in fiscal 2006 related to the increase in the coupon interest rate to 63/4% and the additional interest expense under the registration rights agreement. Also, in accordance with EITFNo. 06-6,Debtor’s Accounting for a Modification (or Exchange) of Convertible Debt Instruments,the changes to the 63/4% Notes were recorded in fiscal 2006 as a modification, not an extinguishment, of the debt. The Company recorded the increase in the fair value of the exchange option as a debt discount with a corresponding increase to additionalpaid-in-capital in stockholders’ equity. The debt discount was $7.7 million and is being amortized to interest expense following the interest method to the first date the noteholders could require repayment. Total amortization on the debt discount was $0.8 million as of February 4, 2007.

The 63/4% Notes are exchangeable into cash and shares of our common stock. Upon exchange of the 63/4% Notes, we will deliver cash equal to the lesser of the aggregate principal amount of notes to be exchanged and our total exchange obligation and, in the event our total exchange obligation exceeds the aggregate principal

26

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

amount of notes to be exchanged, shares of our common stock in respect of that excess. The following table represents key terms of the 63/4% Notes:

Terms	63/4% Notes
Interest Rate	6.75% per year until December 15, 2010; 6.50% thereafter
Exchange Rate	60.6061 shares per $1,000 principal (equivalent to an initial exchange price of approximately $16.50 per share)
Maximum CSK shares exchangeable	6,060,610 common shares, subject to adjustment in certain circumstances
Maturity date	December 15, 2025
Guaranteed by	CSK Auto Corporation and all of Auto’s present and future domestic subsidiaries, jointly and severally, on a senior basis
Dates that the noteholders may require Auto to repurchase some or all for cash at a repurchase price equal to 100% of the principal amount of the notes being repurchased, plus any accrued and unpaid interest	December 15, 2010, December 15, 2015, and December 15, 2020 or following a fundamental change as described in the indenture
Issuance costs being amortized over a5-year period, corresponding to the first date the noteholders could require repayment	$3.7 million
Auto will not be able to redeem notes	Prior to December 15, 2010
Auto may redeem for cash some or all of the notes	On or after December 15, 2010, upon at least 35 calendar days notice
Redemption price	Equal to 100% of the principal amount plus any accrued and unpaid interest and additional interest, if any, to, but not including, the redemption date

Prior to their stated maturity, the 63/4% Notes are exchangeable by the holder only under the following circumstances:

•  During any fiscal quarter (and only during that fiscal quarter) commencing after January 29, 2006, if the last reported sale price of our common stock is greater than or equal to 130% of the exchange price for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter;

•  If the 63/4% Notes have been called for redemption by Auto; or

•  Upon the occurrence of specified corporate transactions, such as a change in control, as described in the indenture under which the 63/4% Notes were issued.

If the 63/4% Notes become exchangeable, the corresponding debt will be reclassified from long-term to current for as long as the notes remain exchangeable.

EITFNo. 00-19,Accounting for Derivative Financial Instruments Indexed to, and potentially Settled in, a Company’s Own Stock,provides guidance for distinguishing between permanent equity, temporary equity, and assets and liabilities. The embedded exchange feature in the 63/4% Notes providing for the issuance of common shares to the extent our exchange obligation exceeds the debt principal and the embedded put options and the call options in the debt each meet the requirements of EITFNo. 00-19 to be accounted for as equity instruments. As such, the share exchange feature and the put options and call options embedded in the debt have not been accounted for as derivatives (which would be marked to market each reporting period). In the event the 63/4% Notes are exchanged, the exchange will be accounted for in a similar manner to a conversion with no gain or loss (as the cash payment of principal reduces the recorded liability issued at par) and the issuance of common shares would be

27

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

recorded in stockholders’ equity. Any accrued interest on the debt will not be paid separately upon an exchange and will be reclassified to equity.

We have entered into a registration rights agreement with respect to the 63/4% Notes and the underlying shares of our common stock into which the 63/4% Notes are potentially exchangeable. Under its terms, we will be required to pay additional interest of up to 50 basis points on the 63/4% Notes until the earlier of the date the 63/4% Notes are no longer outstanding or the date two years after the date of their issuance if we fail to meet certain filing and effectiveness deadlines with respect to the registration of the 63/4% Notes and the underlying shares of our common stock. In the event the debt is exchanged, the additional interest is not payable.

7% Notes

In July 2006, we completed a tender offer for our 7% Notes, in which we repurchased virtually all of the 7% Notes for the principal amount of $224.96 million. We purchased the balance of the 7% Notes later in fiscal 2006. Unamortized deferred financing fees at the time of repurchase were 4.5 million, and costs associated with the transaction were approximately $0.6 million, all of which was recognized as a loss on debt retirement during the second quarter of fiscal 2006. In connection with the repurchase of the 7% Notes, we terminated our interest rate swap agreement, which was intended to hedge the fair value of $100.0 million of the 7% Notes. Consideration of $11.1 million was paid to terminate the swap, of which $10.4 million represented the fair value liability and $0.7 million represented accrued interest. The $10.4 million was recognized as a loss during the second quarter of fiscal 2006.

In January 2004, we issued $225 million of our 7% Notes due January 15, 2014, with interest payable semi-annually on January 15 and July 15. We were permitted to redeem all of the notes prior to January 15, 2009, pursuant to the make-whole provisions as defined in the indenture under which the 7% Notes were issued. In addition, we were permitted to redeem up to 35% of the aggregate principal amount of the notes before January 15, 2007 with the net proceeds of certain equity offerings. At any time on or after January 15, 2009, we were permitted to redeem some or all of the notes for cash, at our option, in whole or in part, at the following redemption prices, plus accrued and unpaid interest to the date of redemption (expressed as percentages of the principal amount): January 15, 2009 through January 15, 2010, 103.5%; January 15, 2010 through January 15, 2011, 102.3%; January 15, 2011 through January 15, 2012, 101.2%; and January 15, 2012 through maturity, 100%. If we experienced a Change of Control (as defined in the indenture under which the notes were issued), holders of the notes were permitted to require us to repurchase their notes at a purchase price of 101% of the principal amount of the notes, plus accrued and unpaid interest and liquidated damages, if any, to the date of the purchase.

The 7% Notes were unsecured general obligations of Auto. They ranked junior in right of payment to all of our existing and future senior debt, equal in right of payment to all of our future senior subordinated indebtedness, senior in right of payment to all of our future subordinated indebtedness and were unconditionally guaranteed by the Company and the subsidiary guarantors named in the indenture under which the notes were issued on a senior subordinated basis.

33/8% Notes

In July 2006, we repaid all the 33/8% Notes upon the acceleration of their maturity for the principal amount of $125.0 million. Unamortized deferred financing fees at the time of repayment were $4.0 million, and costs associated with the transaction were approximately $0.1 million, all of which was recognized as a loss on debt retirement during the second quarter of fiscal 2006. In September 2006, the equity call option and warrant contracts were terminated and settled with the counterparty. We elected a cash settlement and received approximately $3.0 million for the call option and paid $1.4 million for the warrant contract. These amounts represented the fair value of the contracts at the termination date and were recorded as additional paid-in capital in fiscal 2006.

The 33/8% Notes were exchangeable into cash and shares of our common stock. Upon exchange of the 33/8% Notes, we were to deliver cash equal to the lesser of the aggregate principal amount of notes to be exchanged and our total exchange obligation and, in the event our total exchange obligation exceeded the aggregate principal

28

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

amount of notes to be exchanged, shares of our common stock in respect of that excess. The following table represents key terms under the 33/8% Notes:

Terms	33/8% Notes
Interest Rate	3.375% per year until August 15, 2010; 3.125% thereafter
Exchange Rate	43.3125 shares per $1,000 principal (equivalent to an initial exchange price of approximately $23.09 per share)
Maximum CSK shares exchangeable	5,414,063 common shares, subject to adjustment in certain circumstances
Maturity date	August 15, 2025
Guaranteed by	CSK Auto Corporation and all of Auto’s present and future domestic subsidiaries, jointly and severally, on a senior basis
Dates that the noteholders may require Auto to repurchase some or all for cash at a repurchase price equal to 100% of the principal amount of the notes being repurchased, plus any accrued and unpaid interest	August 15, 2010, August 15, 2015, and August 15, 2020 or following a fundamental change as described in the indenture
Issuance costs being amortized over a5-year period, corresponding to the first date the noteholders could require repayment	$4.8 million
Auto will not be able to redeem notes	Prior to August 15, 2010
Auto may redeem for cash some or all of the notes	On or after August 15, 2010, upon at least 35 calendar days notice
Redemption price	Equal to 100% of the principal amount plus any accrued and unpaid interest and additional interest, if any, to, but not including, the redemption date

Prior to their stated maturity, the 33/8% Notes were exchangeable by the holder only under the following circumstances:

•  During any fiscal quarter (and only during that fiscal quarter) commencing after January 29, 2006, if the last reported sale price of our common stock was greater than or equal to 130% of the exchange price for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter;

•  If the 33/8% Notes had been called for redemption by Auto; or

•  Upon the occurrence of specified corporate transactions, such as a change in control, as described in the indentures under which the 33/8% Notes were issued.

If the 33/8% Notes had become exchangeable, the corresponding debt was to be reclassified from long-term to current for as long as the notes remained exchangeable.

In connection with the issuance of the 33/8% Notes, we paid $27.0 million to a counterparty to purchase a call option designed to mitigate the potential dilution from the exchange of the 33/8% Notes. Under the call option, as amended, we had an option to purchase from the counterparty 5,414,063 shares, subject to adjustment, of our common stock at a price of $23.09 per share, which is equal to the initial exchange price of the 33/8% Notes. We received an aggregate of $17.8 million of proceeds from the same counterparty relating to the sale of warrants to acquire, subject to adjustment, up to 5,414,063 shares of our common stock. The warrants were exercisable at a price of $26.29 per share. Both the call option and warrant transactions had five-year terms. The call option and warrant transactions were each to be settled through a net share settlement to the extent that the price of our common stock exceeds the exercise price set forth in the agreements. Our objective with these transactions was to reduce the

29

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

potential dilution of our common stock upon an exchange of the 33/8% Notes. We accounted for the call option and the warrant as equity under EITFNo. 00-19,Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.

The embedded exchange feature in the 33/8% Notes providing for the issuance of common shares to the extent our exchange obligation exceeded the debt principal, the embedded put options and the call options in the debt as well as the separate freestanding call options and the warrants associated with the 33/8% Notes each met the requirements of EITFNo. 00-19 to be accounted for as equity instruments. As such, the share exchange feature, the put options and call options embedded in the debt and the separate freestanding call options and the warrants have not been accounted for as derivatives (which would be marked to market each reporting period). In the event the 33/8% Notes were exchanged, the exchange was to be accounted for in a similar manner to a conversion with no gain or loss (as the cash payment of principal reduces the recorded liability issued at par) and the issuance of common shares would have been recorded in stockholders’ equity. Any accrued interest on the debt would not be paid separately upon an exchange and would be reclassified to equity. In addition, the premium paid for the call option and the premium received for the warrant were recorded as additional paid-in capital in the accompanying consolidated balance sheet and were not accounted for as derivatives (which would be marked to market each reporting period). Incremental net shares for the 33/8% Notes exchange features and the warrant agreements were to be included in our future diluted earnings per share calculations for those periods in which our average common stock price exceeded $23.09 in the case of the 33/8% Notes, and $26.29 in the case of the warrants. The purchased call option was anti-dilutive and was excluded from the diluted earnings per share calculation.

We entered into a registration rights agreement with respect to the 33/8% Notes and the underlying shares of our common stock into which the 33/8% Notes were potentially exchangeable. Under its terms, we would have been required to pay additional interest of up to 50 basis points on the 33/8% Notes until the earlier of the date the 33/8% Notes were no longer outstanding or the date two years after the date of their issuance if we failed to meet certain filing and effectiveness deadlines with respect to the registration of the 33/8% Notes and the underlying shares of our common stock. In the event the debt was exchanged, the additional interest was not payable.

Seller Financing Arrangements

Seller financing arrangements relate to debt established for stores in which we were the seller-lessee and did not recover substantially all construction costs from the lessor. In those situations, we recorded our total cost in property and equipment and amounts funded by the lessor as a debt obligation in the accompanying balance sheet in accordance with EITFNo. 97-10,The Effect of Lessee Involvement in Asset Construction.A portion of the rental payments made to the lessor are charged to interest expense and reduce the corresponding debt based on amortization schedules.

Debt Covenants

Certain of our debt agreements at February 4, 2007 contained negative covenants and restrictions on actions by us and our subsidiaries including, without limitation, restrictions and limitations on indebtedness, liens, guarantees, mergers, asset dispositions, investments, loans, advances and acquisitions, payment of dividends, transactions with affiliates, change in business conducted, and certain prepayments and amendments of indebtedness. In addition, our Senior Credit Facility and our Term Loan Facility contain certain financial covenants as discussed below.

A breach of the covenants or restrictions contained in these debt agreements could result in an event of default thereunder. Upon the occurrence and during the continuance of an event of default under either the Senior Credit Facility or the Term Loan Facility, the lenders thereunder could elect to terminate the commitments thereunder (in the case of the Senior Credit Facility only), declare all amounts owing thereunder to be immediately due and payable and exercise the remedies of a secured party against the collateral granted to them to secure such indebtedness. If the lenders under either the Senior Credit Facility or the Term Loan Facility accelerate the payment of the indebtedness due thereunder, we cannot be assured that our assets would be sufficient to repay in full such indebtedness, which is collateralized by substantially all of our assets. At February 4, 2007, we were in compliance with or had obtained waivers with respect to the covenants under all our debt agreements.

30

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Senior Credit Facility requires a minimum 1:1 Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) under certain circumstances. For the four quarters ended February 4, 2007, this Ratio as so defined was 1.47:1. The Term Loan Facility also contains certain financial covenants, one of which is the requirement of a minimum Fixed Charge Coverage Ratio (as separately defined in the Term Loan Facility) of 1.4:1 until December 31, 2008 and 1.45:1 thereafter. For the four quarters ended February 4, 2007, this Ratio was 1.55:1. The Term Loan Facility, as amended, also requires that a leverage ratio test be met. The maximum leverage ratio permitted was 3.75:1 at the end of fiscal 2006 and is 3.95:1, 3.85:1, 3.75:1 and 3.50:1 for the first, second, third and fourth quarters, respectively, of fiscal 2007. The leverage ratio further declines to 3.25:1 at the end of fiscal 2008 and 3.00:1 at the end of fiscal 2009. Our leverage ratio was 3.31:1 as of February 4, 2007. The leverage ratios for fiscal 2007 reflect the April 27, 2007 second amendment of the Term Loan Facility in which certain fiscal 2007 leverage ratios were modified as set forth above to provide greater flexibility along with the elimination of undrawn letters of credit from the definition of debt. Based on our current financial forecasts for fiscal 2007, we believe we will remain in compliance with the financial covenants of the Senior Credit Facility and Term Loan Facility described above for fiscal 2007 and the foreseeable future. However, a significant decline in our net sales or gross margin or unanticipated significant increases in operating costs or LIBOR-based interest rates could limit the effectiveness of discretionary actions management could take to maintain compliance with financial covenants. Although we don’t expect such significant decreases and increases to occur, if they did occur, we would seek to obtain a covenant waiver from our lenders or seek a refinancing, both of which we believe are viable options for the Company. However, there can be no assurances a waiver would be obtained or a refinancing could be achieved.

On June 11, 2007, we entered into a third waiver to our Senior Credit Facility that extended the then current waiver relating to the delivery thereunder of our delinquent periodic SEC filings and related financial statements until the earliest of (i) August 15, 2007, (ii) the filing with the SEC of all such delinquent SEC filings up to and including ourForm 10-Q for the first quarter of fiscal 2007, and (iii) the first date on which an event of default has occurred under the 63/4% Notes and any applicable grace period that must expire prior to acceleration of such Notes has expired. When we renegotiated the terms of our 45/8% (now 63/4%) Notes in June 2006, we obtained an exemption until June 30, 2007 with respect to the covenant relating to the need to file and deliver to the trustee for the 63/4% Notes our periodic SEC filings. We did not file and deliver all of our periodic SEC filings that are delinquent by June 30, 2007, and if a notice of default is given to the Company by the trustee for such Notes or by the holders of 25% of the Notes, a default will occur under the indenture under which the 63/4% Notes were issued that would entitle the holders of the 63/4% Notes to accelerate the payment of their Notes no sooner than August 31, 2007. The occurrence of an event of default under the indenture under which the 63/4% Notes were issued, along with the expiration of the applicable grace period thereunder, would result in an event of default under the Senior Credit Facility, which would in turn result in an event of default under the Term Loan Facility.

We expect to be able to complete all of our late periodic SEC filings by August 15, 2007, which is within the 60 day period following such a default during which we can cure such a default and prevent the holders of the 63/4% Notes from having the right to accelerate their Notes. Filing by August 15, 2007 should permit us to avoid the acceleration of the 63/4% Notes and any related negative consequences under the Senior Credit Facility and the Term Loan Facility. Nevertheless, if we were to fail to complete such filings by August 15, 2007, and were neither able to negotiate compromises that would avoid the acceleration or cross acceleration of all our other indebtedness for borrowed money nor refinance all or a portion of such indebtedness, the possibility exists that we would be unable to repay such indebtedness and could be declared insolvent.

Restrictions on Paying Dividends and Movement of Funds

Under the Senior Credit Facility and the Term Loan Facility, Auto is prohibited from declaring dividends or making other distributions with respect to its stock, subject to certain exceptions, including an exception permitting stock dividends. However, Auto may make distributions to the Company so that the Company may take certain actions, including, without limitation, payments of franchise taxes, other fees required to maintain its corporate existence, operating costs and income taxes, repurchases of the Company’s stock from former employees (subject to a dollar limitation), certain loans to employees and up to $25.0 million of other stock repurchases or redemptions,

31

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

subject to certain conditions. In July 2005, the Company repurchased approximately $25.0 million of our common stock utilizing proceeds from the issuance of our 33/8% Notes and other funds.

Long-Term Debt Maturities

As of February 4, 2007, the maturities of long-term debt, excluding capital leases, were as follows ($ in thousands):

Fiscal 2007	$	56,098
Fiscal 2008		3,997
Fiscal 2009		4,058
Fiscal 2010		97,295
Fiscal 2011		4,454
Thereafter		341,563
	$	507,465

Note 9 — Derivative Financial Instruments

During April 2004, we entered into an interest rate swap agreement to effectively convert $100.0 million of our 7% Notes to a floating rate, set semi-annually in arrears, equal to the six month LIBOR + 283 basis points. The agreement was for the term of the 7% Notes. The hedge was accounted for as a “fair value” hedge; accordingly, the fair value of the derivative and changes in the fair value of the underlying debt were reported on our consolidated balance sheet and recognized in the results of operations. Based upon our assessment of effectiveness of the hedge, changes in the fair value of this derivative and the underlying debt did not have a significant effect on our consolidated results of operations.

At January 29, 2006, the fair value of the interest rate swap approximated $6.7 million, which was included as an increase in other long-term liabilities with an identical amount reflected as a basis adjustment to the 7% Notes on the accompanying consolidated balance sheet. The differential to be paid under the agreement was accrued consistent with the terms of the swap agreement and was recognized in interest expense over the term of the related debt. The related amount payable to the counter party was included in accrued liabilities.

In July 2006, we paid $11.1 million to terminate the swap agreement, representing $10.4 million of a fair value liability and $0.7 million of accrued interest. The $10.4 million was recognized as a loss on debt retirement during the second quarter of fiscal 2006. As of February 4, 2007, the Company had not entered into any derivative financial agreements.

Note 10 — Leases and Other Commitments

We lease our office and warehouse facilities, all but one of our retail stores, and most of our vehicles and equipment. Generally, store leases provide for minimum rentals and the payment of utilities, maintenance, insurance and taxes. Certain store leases also provide for contingent rentals based upon a percentage of sales in excess of a stipulated minimum. The majority of lease agreements are for base lease periods ranging from 10 to 20 years, with three to five renewal options of five years each.

Operating lease rental expense is as follows ($ in thousands):

	Fiscal Year
	2006			2005			2004
Minimum rentals	$	140,484		$	122,378		$	114,613
Contingent rentals		802			1,068			1,125
Sublease rentals		(7,955	)		(8,306	)		(8,907	)
	$	133,331		$	115,140		$	106,831

32

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Future minimum lease obligations (income) under non-cancelable leases at February 4, 2007 are as follows ($ in thousands):

	Capital			Operating		Sublease
	Leases			Leases		Rentals
Fiscal 2007	$	10,330		$	146,818	$	(6,723	)
Fiscal 2008		7,226			127,336		(4,041	)
Fiscal 2009		5,431			107,439		(2,365	)
Fiscal 2010		2,983			91,106		(1,630	)
Fiscal 2011		1,084			76,479		(1,003	)
Thereafter		446			262,791		(1,188	)
		27,500		$	811,969	$	(16,950	)
Less: amounts representing interest		(3,464	)
Present value of obligations		24,036
Less: current portion		(8,761	)
Long-term obligation	$	15,275

On March 7, 2005, the Company entered into a five year logistics services agreement with Penske Logistics (“Penske”) whereby Penske provides substantially all of transportation services needs for inventory movement between each of our distribution centers, warehouses and stores. Billings from Penske contain bundled fixed and variable components covering the costs of dispatching, drivers, fuel, maintenance, equipment and other costs of providing the services. Although the agreement has a five-year term, it is cancellable by either party at each anniversary date of the agreement. Should the Company cancel the agreement early without cause, we would be subject to certain costs of early termination. Amounts expensed to Penske for logistics services were approximately $15.6 million for the period of March 7, 2005 through January 29, 2006 and $22.2 million for all of fiscal 2006.

Note 11 — Employee Benefit Plans

We provide various health, welfare and disability benefits to our full-time employees that are funded primarily by Company contributions. Other than for certain of our senior executives, we do not provide post-employment or post-retirement health care or life insurance benefits to our employees.

Supplemental Retirement Plan Agreement

We have a supplemental executive retirement plan agreement with our Chairman and Chief Executive Officer, Maynard Jenkins, which provides supplemental retirement benefits for a period of 10 years beginning on the first anniversary of the effective date of termination of his employment for any reason other than for Cause (as defined in such retirement plan agreement). The benefit amount in this agreement is fully vested and payable to Maynard Jenkins at a rate of $600,000 per annum. In January 2006, this agreement was amended to make such changes as were necessary to bring the agreement into compliance with the American Jobs Creation Act of 2004. We have accrued the entire present value of this obligation of approximately $4.1 million as of January 29, 2006 and February 4, 2007.

Retirement Program

We sponsor a 401(k) plan that is available to all our employees who, up until December 31, 2006, had to have completed one year of continuous service to be eligible. Effective October 1, 1997, we match from 40% to 60% of employee contributions in 10% increments, based on years of service, up to 4% of the participant’s base salary. Participant contributions are subject to certain restrictions as set forth in the Internal Revenue Code of 1986, as amended. Our matching contributions totaled $1.9 million, $1.5 million and $1.5 million for fiscal 2006, 2005 and 2004 respectively. Effective January 1, 2007, we amended the 401(k) plan to provide immediate eligibility for participation at the date of hire if the employee is at least 21 years of age; however, no Company matching contributions vest until one year of plan participation (or three years of Company service).

33

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We also sponsor the CSK Auto, Inc. Deferred Compensation Plan. This plan is maintained primarily to provide deferred compensation benefits for a select group of“management or highly compensated employees”as defined by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). For Internal Revenue Code (“IRC”) and ERISA purposes, this plan is deemed to be “unfunded.” The Deferred Compensation Plan permits participants voluntarily to defer up to 50% of their salary and 100% of their annual bonus without regard to the limitations under the IRC applicable to the Company’s tax-qualified plans. In addition, any refunds resulting from non-discrimination testing of the Company’s 401(k) Plan will be automatically transferred from the participant’s 401(k) account to the Deferred Compensation Plan. Although the Company may also make matching contributions to a participant’s account under this plan (except for automatic transfers of excess Company matching contributions from a participant’s 401(k) plan account), the Company has not elected to do so. Deferred amounts and any matching contributions under the Deferred Compensation Plan are 100% vested at all times, and are invested on behalf of the participant in investment vehicles selected from time to time by the administrators of the plan. Benefits are payable at retirement in either a lump sum or installments for up to 12 years. Benefits upon a termination of employment prior to retirement are payable only in a lump sum.

Long-Term Incentive Plan

In fiscal 2005, the Compensation Committee of our Board of Directors adopted the CSK Auto Corporation Long-Term Incentive Plan. The LTIP was established within the framework of the CSK Auto Corporation 2004 Stock and Incentive Plan, pursuant to which cash-based incentive bonus awards may be granted based upon the satisfaction of specified performance criteria. The Board also approved and adopted forms of Incentive Bonus Unit Award Agreements used to evidence the awards under the LTIP. Under the terms of the LTIP, participants (senior executive officers only) were awarded a certain number of incentive units that are subject to a four-year vesting period (25% per year, with the first vesting period ending in fiscal 2007) as well as stock performance criteria. Subject to specific terms and conditions governing a change in control of the Company, each incentive bonus unit, when vested, represents the participant’s right to receive cash payments from the Company on specified payment dates equal to the amounts, if any, by which the average of the per share closing prices of the Company’s common stock on the New York Stock Exchange over a specified period of time (after release by the Company of its fiscal year earnings) (the “measuring period”) exceeds $20 per share (which figure is subject to certain adjustments in the event of a change in the Company’s capitalization). The Company recorded $1.0 million, net of $0.6 million income tax benefit, as a cumulative effect of a change in accounting principle for the LTIP fair value liability under SFAS 123R. For the year ended February 4, 2007, the Company recognized $0.3 million of expense related to the LTIP units. At February 4, 2007, the Company had recorded a liability of $1.9 million related to LTIP units. See Note 2 — Share Based Employee Compensation Plans.

2004 Stock and Incentive Plan

In June 2004, our shareholders approved the CSK Auto Corporation 2004 Stock and Incentive Plan (the “Plan”), which replaces all of the following previously existing plans: (1) the 1996 Associate Stock Option Plan; (2) the 1996 Executive Stock Option Plan; (3) the 1999 Executive Stock Option Plan; and (4) the CSK Auto Corporation Directors Stock Plan. Approximately 1.9 million options to purchase shares of our common stock granted under these prior plans were still outstanding at the inception of the new Plan. These options can still be exercised by the grantees according to the provisions of the prior plans. Pursuant to the provisions of the Plan, any of these options which are cancelled under the prior plans will be added to shares available for issuance under the Plan.

The Plan is administered by the Compensation Committee of our Board of Directors, which has broad authority in administering and interpreting the Plan. We believe the Plan promotes and closely aligns the interests of our employees and directors with our stockholders by permitting the award of stock-based compensation and other performance-based compensation. We believe the Plan will strengthen our ability to reward performance that enhances long-term stockholder value and to attract and retain outstanding employees and executives. Plan participation is limited to employees of the Company, any subsidiary or parent of the Company and directors of the Company.

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CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, stock units, incentive bonuses and other stock unit awards. Under the Plan, the number and kind of shares as to which options, stock appreciation rights, restricted stock, stock units, incentive bonuses or other stock unit awards may be granted is 4.0 million shares of our common stock plus any shares subject to awards made under the prior plans that were outstanding on the effective date of the Plan. The number of shares that can be granted for certain of the items listed above may be restricted per the Plan document. In no event will any option be exercisable more than 10 years after the date the option is granted. In general, the stock incentives vest in three years. As of February 4, 2007, there were approximately 1.6 million shares available for grant.

Options Activity

Activity in all of our stock option plans is summarized as follows:

				Weighted		Weighted				Weighted
				Average		Average				Average		Aggregate
	Number of			Exercise		Fair		Options		Exercisable		Intrinsic
	Shares			Price		Value		Exercisable		Price		Value
Balance at February 1, 2004		1,869,309		$	13.91				1,058,713	$	14.27
Granted at market price		1,127,896			13.78		5.55
Exercised		(188,858	)		10.97
Cancelled		(161,515	)		16.22
Balance at January 30, 2005		2,646,832			13.92				964,898	$	13.87	$	7,269,000
Granted at market price		918,527			15.92		5.74
Exercised		(105,590	)		10.70
Cancelled		(252,360	)		17.94
Balance at January 29, 2006		3,207,409			14.31				2,368,144	$	14.56	$	7,681,000
Granted at market price		626,236			16.62		6.35
Exercised		(91,963	)		13.05
Cancelled		(461,161	)		19.02
Balance at February 4, 2007		3,280,521		$	14.13				2,353,327	$	13.54	$	7,938,000

The following table summarizes information about our stock options at February 4, 2007:

	Options Outstanding						Options Exercisable
			Weighted						Weighted
			Average		Weighted				Average		Aggregate
	Number		Remaining		Average				Exercisable		Intrinsic
Range of Exercise Prices	Outstanding		Contractual Life		Exercise Price		Exercisable		Price		Value
$2.75 – $12.86		766,062		1.86	$	10.26		765,895	$	10.26
$12.88 – $13.32		765,603		4.55		13.32		520,438		13.32
$13.40 – $16.33		355,782		3.26		14.46		296,109		14.42
$16.35 – $16.35		663,716		4.67		16.35		663,716		16.35
$16.42 – $19.83		729,358		6.27		16.86		107,169		18.31
$2.75 – $19.83		3,280,521		4.19	$	14.13		2,353,327	$	13.54	$	6,873,000

In the fourth quarter of fiscal 2005, the Board of Directors approved the acceleration of the vesting of all “underwater” stock options (those stock options previously granted with exercise prices above $15.90, the market price of the Company’s stock on January 27, 2006) previously awarded to employees and executive officers. Option awards granted subsequent to the Board’s action are not included in the acceleration and will vest equally over the service period established in the award, typically three years.

35

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As a result of the vesting acceleration, options to purchase approximately 770,775 shares became exercisable immediately; however, restrictions on the sale of any such shares obtained by way of the exercise of accelerated options were imposed to minimize unintended personal benefits to the option holders. Sales of such shares may not occur until the original vesting dates, and sales of any such shares by officers and employees who terminate their employment with the Company (subject to certain exceptions in the case of retirement, death, disability and change of control) are disallowed for three years following the later of the date of their termination of employment or their exercise of the options.

The following table summarizes values for stock options exercised (in thousands):

	Fiscal Year
	2006		2005		2004
Cash received	$	1,196	$	1,130	$	2,074
Tax benefits	$	—	$	231	$	390

Restricted Stock Activity

During fiscal 2006 and 2005, the Company issued 71,147 shares and 88,226 shares of restricted stock, respectively, at an average market price of $16.62 and $15.84, respectively, to our executive officers and other associates pursuant to the Plan, which vest equally over a three year period. At January 29, 2006, the Company had $1.7 million of deferred compensation costs related to unvested restricted stock included in stockholders’ equity and, in accordance with SFAS No. 123R, the deferred compensation balance was reclassified to additional paid-in capital. Compensation expense of $0.6 million, $0.6 million and $0.1 million was recorded during fiscal 2006, 2005 and 2004, respectively.

Activity for our restricted stock is summarized as follows:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Non-vested at January 29, 2006		137,779		$	14.72
Granted		71,147			16.62
Forfeited		(43,909	)		14.70
Cancelled		(36,708	)		14.46
Non-vested at February 4, 2007		128,309		$	15.86

36

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 12 — Income Taxes

The provision for income taxes (excluding the $0.6 million deferred income tax benefit allocated to the cumulative effect of a change in accounting principle in fiscal 2006) is comprised of the following ($ in thousands):

	Fiscal Year
	2006		2005		2004
Current
Federal	$	596	$	1,156	$	1,362
State		—		84		10
		596		1,240		1,372
Deferred
Federal		3,533		29,626		31,576
State		862		6,382		6,502
		4,395		36,008		38,078
Total	$	4,991	$	37,248	$	39,450

The following table summarizes the differences between our provision for income taxes and the statutory provision ($ in thousands):

	Fiscal Year
	2006			2005			2004
Income before income taxes	$	12,221		$	95,038		$	99,012
Federal income tax rate		35	%		35	%		35	%
Expected provision (benefit) for income taxes		4,277			33,263			34,654
Permanent wage add-back for federal tax credits		127			151			185
Non-deductible executive compensation		—			—			251
Permanent effect of stock based compensation		42			—			—
Other permanent differences		30			33			135
State taxes, net of federal benefit		550			4,114			4,263
Changes to tax reserves		—			1,096			—
Tax credits and other		(35	)		(1,409	)		(38	)
Actual provision for income taxes	$	4,991		$	37,248		$	39,450

37

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The current and non-current deferred tax assets and liabilities reflected in the balance sheet consist of the following ($ in thousands):

	February 4,			January 29,
	2007			2006
Current deferred income taxes:
Store closing costs	$	999		$	1,196
Accrued employee benefits		15,809			16,101
Credits and other benefits		—			369
Property taxes		(2,146	)		(2,146	)
Provision for bad debts		155			171
Tax loss carryforwards		7,861			5,267
Inventory valuation differences		21,456			12,485
Other		3,156			4,992
Valuation allowance		(790	)		(629	)
Total current deferred income tax asset (liability)		46,500			37,806
Non-current deferred income taxes:
Store closing costs		951			1,580
Accrued employee benefits		2,490			—
Capital lease expenditures		(1,712	)		(1,478	)
Deferred rent and incentives		10,939			7,626
Credits and other benefits		11,697			10,608
Depreciation and amortization		(48,004	)		(45,708	)
Tax loss carryforwards		32,216			40,306
Call options for convertible debt		—			10,610
Discount on senior exchangeable notes		(2,727	)		—
Other		(688	)		(1,576	)
Valuation allowance		(962	)		(1,123	)
Total non-current deferred income tax asset (liability)		4,200			20,845
Net deferred tax asset	$	50,700		$	58,651

We have recorded deferred tax assets of approximately $40.0 million as of February 4, 2007 reflecting the benefit of federal and state tax loss carryforwards approximating $108.5 million and $48.2 million, which begin to expire in 2021 and 2007, respectively. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Utilization of certain of the net operating loss carryforwards may be limited under Section 382 of the Internal Revenue Code. Although realization is not assured, management believes it is more likely than not that all the deferred tax assets will be realized with the exception of a portion of California Enterprise Zone credits and a portion of Arizona net operating losses for which management has determined that a valuation allowance in the amount of $1.4 million and $0.3 million, respectively, is necessary.

We recognize liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is not required, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.

38

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 13 — 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 date 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 the following 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. Certain operating expenses, such as utilities and repairs, are expensed as incurred and no provision is made for employee termination costs.

As of February 4, 2007, we had a total of 175 locations included in the allowance for store closing costs, consisting of 122 store locations and 53 service centers. Of the store locations, 15 locations were vacant and 107 locations were subleased. Of the service centers, 3 were vacant and 50 were subleased. Future rent expense will be incurred through the expiration of the non-cancelable leases.

Activity in the allowance for store closing costs and the related payments are as follows ($ in thousands):

	Fiscal Year Ended
	February 4,			January 29,			January 30,
	2007			2006			2005
Balance, beginning of year	$	7,033		$	7,774		$	12,001
Store closing costs:
Provision for store closing costs		258			246			285
Other revisions in estimates		112			1,505			604
Accretion		306			420			552
Operating expenses and other		811			732			788
Total store closing costs		1,487			2,903			2,229
Purchase accounting adjustments — Murray’s Discount Auto Stores		—			324			—
Payments:
Rent expense, net of sublease recoveries		(2,279	)		(2,227	)		(2,895	)
Occupancy and other expenses		(915	)		(740	)		(787	)
Sublease commissions and buyouts		(415	)		(1,001	)		(2,774	)
Total payments		(3,609	)		(3,968	)		(6,456	)
Balance, end of year	$	4,911		$	7,033		$	7,774

39

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During fiscal 2006, we recorded the following: (1) $0.3 million in charges associated with fiscal 2006 store closures; (2) $0.3 million associated with accretion expense relating to the discounting of closed store liabilities; and (3) $0.8 million associated with other operating expenses such as utilities, repairs and maintenance costs that are expensed as incurred.

During fiscal 2005, we recorded the following: (1) $0.2 million in charges associated with fiscal 2005 store closures; (2) $1.5 million in charges resulting from revisions in estimates, primarily related to stores that were subleased and became vacant as well as rent increases in master lease agreements; (3) $0.4 million associated with accretion expense relating to the discounting of closed store liabilities; and (4) $0.7 million associated with other operating expenses such as utilities, repairs and maintenance costs that are expensed as incurred.

During fiscal 2004, we recorded the following: (1) $0.2 million in charges associated with fiscal 2004 store closures; (2) $0.6 million in charges resulting from revisions in estimates; (3) $0.6 million associated with accretion expense relating to the discounting of closed store liabilities; and (4) $0.8 million associated with other operating expenses such as utilities, repairs and maintenance costs that are expensed as incurred.

We expect net cash outflows for closed store locations of approximately $4.0 million during fiscal 2007. We plan to fund these cash outflows and future cash outflows from normal operating cash flows. We anticipate that we will close or relocate approximately 26 stores in fiscal 2007. We anticipate that the majority of these closures will occur near the end of the lease terms, resulting in minimal closed store costs.

Note 14 — Stock Repurchase Program

On July 25, 2005, we announced a share repurchase program for the purchase of up to $25.0 million (aggregate purchase price) of our common stock in connection with the refinancing transactions we completed in 2005 (discussed in Note 8 — Long Term Debt, above). In the second quarter of 2005, we repurchased 1,409,300 shares of common stock for an aggregate purchase price of $25.0 million.

Note 15 — Transactions and Relationships with Related Parties

Upon his retirement as President and Chief Operating Officer of the Company in April 2000, the Company entered into an employment agreement with Mr. James Bazlen, a member of our Board of Directors, for the performance of specific projects for the Company, as designated by the Chief Executive Officer or President, for an annual base salary of $50,000 and continued payment of certain medical, dental, insurance, 401(k) and other benefits. This agreement is terminable by either party upon written notice. In connection with his membership on our Board of Directors, Mr. Bazlen receives all compensation (including annual grants of stock options), except for the Annual Stipend, that is provided to our outside directors under the Outside Director Compensation Policy.

The Company entered into an agreement on November 18, 2005 with Evercore Financial Advisors L.L.C. (“Evercore”) for certain financial advisory services in connection with our acquisition of Murray’s. William A. Shutzer, one of our directors, is a Senior Managing Director of Evercore. Under the agreement, we agreed to pay, and the Board of Directors approved the payment of, approximately $1.4 million to Evercore upon the successful closing of the transaction. The agreement also contained standard terms and conditions. We closed the Murray’s transaction on December 19, 2005. In May 2006, the Board of Directors approved the Company’s entry into a separate agreement with Evercore for financial advisory services in connection with our refinancing in fiscal 2006, resulting in payments in fiscal 2006 to Evercore of approximately $610,000.

During 2005, Maynard Jenkins, Chairman of the Board of Directors and Chief Executive Officer of the Company, performed consulting services for an unaffiliated entity relating to a proposed acquisition for which he was paid a fee of $250,000. When he accepted the consulting engagement, Mr. Jenkins did not recall that his employment agreement with the Company (which initially was executed in 1998) requires prior approval by the Board of any outside work for compensation. In early 2006, this matter was raised by Mr. Jenkins with the Board and the Board requested, and Mr. Jenkins agreed, that he remit the after-tax proceeds of the consulting fee to the Company. As a result, in March, 2006, Mr. Jenkins paid to the Company the amount of $147,060.

40

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 16 — Legal Matters

Audit Committee Investigation and Restatement of the Consolidated Financial Statements

Overview

In its 200510-K, the Company’s consolidated financial statements for fiscal 2004 and 2003 and quarterly information for the first three quarterly periods in fiscal 2005 and all of fiscal 2004 were restated to correct errors and irregularities of the type identified in its Audit Committee-led independent accounting investigation (referred to herein as the “Audit Committee-led investigation”) and other accounting errors and irregularities identified by the Company in the course of the restatement process, all as more fully described in the “Background” section below.

The Audit Committee concluded that the errors and irregularities were primarily the result of actions directed by certain personnel and an ineffective control environment that, among other things, permitted the following to occur:

•  recording of improper accounting entries as directed by certain personnel;

•  inappropriate override of, or interference with, existing policies, procedures and internal controls;

•  withholding of information from, and providing of improper explanations and supporting documentation to, the Company’s Audit Committee and Board of Directors, as well as its internal auditors and independent registered public accountants; and

•  discouraging employees from raising accounting related concerns and suppressing accounting related inquiries that were made.

In September 2006, upon the substantial conclusion of the Audit Committee-led investigation, the Company announced the departures of the Company’s President and Chief Operating Officer, Chief Administrative Officer (who, until October 2005, served as the Company’s Senior Vice President and Chief Financial Officer) and several other individuals (including its Controller) within the Company’s Finance organization.

Management, with the assistance of numerous experienced accounting consultants (other than its firm of independent registered public accountants) that the Company had retained near the onset of the investigation to assist the then new Chief Financial Officer with the restatement efforts, continued to review the Company’s accounting practices and identified additional errors and irregularities that were corrected in the restatements.

Background

In the Company’s 2004 Annual Report onForm 10-K for fiscal 2004, filed May 2, 2005 (the “200410-K”), management concluded that the Company did not maintain effective internal control over financial reporting as of January 30, 2005 due to the existence of material weaknesses as described in the 200410-K. The plan for remediation at that time called for, among other things, the Company to enhance staffing and capabilities in its Finance organization. During fiscal 2005, we made several enhancements to our Finance organization including the October 2005 hiring of a new Senior Vice President and Chief Financial Officer, Mr. James Riley. In the fourth quarter of fiscal 2005, new personnel in our Finance organization raised questions regarding the existence of inventory underlying certain general ledger account balances, and an internal audit of vendor allowances raised additional concerns about the processing and collections of vendor allowances. Management’s review of these matters continued into our fiscal 2005 year-end financial closing. In early March 2006, it became apparent that inventories and vendor allowances were potentially misstated and that the effect was potentially material to the Company’s previously issued consolidated financial statements. The Audit Committee, acting through a Special Investigation Committee appointed by the Audit Committee consisting of the Audit Committee Chairman and the Company’s designated Presiding Director, retained independent legal counsel who, in turn, retained a nationally recognized accounting firm, other than the Company’s independent registered public accountants, to assist it in conducting an independent investigation relative to accounting errors and irregularities, relating primarily to the Company’s historical accounting for its inventories and vendor allowances.

41

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On March 23, 2006, the Audit Committee concluded that, due to accounting errors and irregularities then noted, the Company’s (i) fiscal 2004 consolidated financial statements, as well as its consolidated financial statements for fiscal years 2003, 2002 and 2001, (ii) selected consolidated financial data for each of the five years in the period ended January 30, 2005, (iii) interim financial information for each of its quarters in fiscal 2003 and fiscal 2004 included in its 2004 Annual Report, and (iv) interim financial statements included in itsForm 10-Qs for the first three quarterly periods of fiscal 2005, should no longer be relied upon. On March 27, 2006, the Company announced that it would be postponing the release of its fourth quarter and fiscal 2005 financial results pending the outcome of the Audit Committee-led investigation; that it would be restating historical financial statements; and that the Company’s consolidated financial statements for the prior interim periods and fiscal years indicated above should no longer be relied upon.

The initial and primary focus of the Audit Committee-led investigation was the Company’s accounting for inventory and for vendor allowances associated with its merchandising programs. However, the Audit Committee did not limit the scope of the investigation in any respect, which was subsequently broadened to encompass other potential concerns raised during the course of the investigation. Throughout and upon completion of the investigation, representatives of the Audit Committee and its legal and accounting advisors shared the results of the investigation with the Company’s independent registered public accounting firm and the SEC, which is conducting a formal investigation of these matters. As noted above, the Company continues to share information and believes it is cooperating fully with the SEC in its formal investigation.

During and following the Audit Committee-led investigation, the Company’s Finance personnel (consisting primarily of the Company’s then new Chief Financial Officer, Mr. Riley, and numerous experienced finance/ accounting consultants the Company had retained near the onset of the investigation to assist Mr. Riley with the restatement efforts), assisted by the Company’s Internal Audit staff, conductedfollow-up procedures to ensure that the information uncovered during the investigation was complete, evaluated the initial accounting for numerous transactions and reviewed the activity in accounts in light of the newly available information to determine the propriety of the initial record-keeping and accounting. In the course of thesefollow-up procedures, the Company also identified a number of other accounting errors and irregularities that were corrected in our restated consolidated financial statements in our 200510-K.

The legal and accounting advisors to the Audit Committee, from March through the end of September 2006, reviewed relevant documentation and interviewed current and former officers and employees of the Company. The investigation and restatement process identified numerous instances of improperly supported journal entries recorded to general ledger accounts, override of Company policies and procedures, absence of appropriately designed policies and procedures, misapplication of GAAP and other ineffective controls. In addition, the investigation identified evidence of both a “tone” among certain senior executives of the Company that discouraged the raising of accounting concerns and other behavior that was deemed to not be acceptable by our disinterested directors (i.e., the five of our directors, including the members of the Special Investigation Committee, who are not present or former members of our management) (hereinafter, the “Disinterested Directors”).

On September 28, 2006, the Company announced the substantial completion of the Audit Committee-led investigation, and that the investigation had identified accounting errors and irregularities that materially and improperly impacted various inventory accounts, vendor allowance receivables, other accrual accounts and related expense accounts. In addition to the personnel changes discussed above, the Company also announced its intent to implement remedial measures in the areas of enhanced accounting policies, internal controls and employee training.

The Audit Committee-led investigation and restatement process resulted in legal, accounting consultant and audit expenses of approximately $25.7 million in fiscal 2006. Legal, accounting consultant and audit expenses relative to the SEC investigation, completion of the restatement process (relative to the 200510-K filed May 1, 2007) and completion of our fiscal 2006 delinquent filings have continued into the current fiscal year; however, we do not expect such expenditures to be of the same magnitude in the aggregate as those incurred in fiscal 2006 relative to the Audit Committee investigation and restatement process.

42

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Securities Class Action Litigation

On June 9 and 20, 2006, two shareholder class actions alleging violations of the federal securities laws were filed in the United States District Court for the District of Arizona against the Company and four of its current and former officers: Maynard Jenkins (who is also a director), James Riley, Martin Fraser and Don Watson (collectively referred to as the “Defendants”). The cases are entitledCommunications Workers of America Plan for Employees Pensions and Death Benefits v. CSK Auto Corporation, et al.,No. Civ.06-1503 PHX DGC(“Communications Workers”)andWilfred Fortier v. CSK Auto Corporation, et al.,No. Civ.06-1580 PHX DGC. The cases were consolidated on September 18, 2006, with theCommunications Workerscase as the lead case. The consolidated actions have been brought on behalf of a putative class of purchasers of CSK Auto Corporation stock between March 20, 2003 and April 13, 2006, inclusive. The consolidated amended complaint, filed on November 30, 2006, alleged that the Defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), andRule 10b-5, promulgated thereunder, as well as Section 20(a) of the Exchange Act. The consolidated amended complaint alleged that Defendants issued false statements before and during the class period about the Company’s income, earnings and internal controls, allegedly causing the Company’s stock to trade at artificially inflated prices during the class period. It sought recovery of damages in an unspecified amount. The Defendants filed motions to dismiss the consolidated amended complaint, arguing that the plaintiffs failed to adequately plead violations of the federal securities laws. The court issued an order on March 28, 2007 granting the motions to dismiss, but allowing plaintiffs leave to amend the complaint. Plaintiffs filed their Second Amended Complaint on May 25, 2007, alleging violations of Section 10(b) of the Exchange Act andRule 10b-5, promulgated thereunder, and Section 20(a) of the Exchange Act, against the same Defendants, except for James Riley, whom the plaintiffs voluntarily dismissed. Defendants have until July 13, 2007 to respond to the Second Amended Complaint and the Company anticipates that it will file a motion to dismiss the Second Amended Complaint prior to that date. This litigation is in its early stages, and we cannot predict its outcome; however, it is reasonably possible that the outcome could have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Shareholder Derivative Litigation

On July 31, 2006, a shareholder derivative suit was filed in the United States District Court for the District of Arizona against certain of CSK’s current and former officers and all current and certain former directors. The Company is a nominal defendant. On March 2, 2007, plaintiff filed an amended derivative complaint. The amended derivative complaint alleged claims under Section 304 of the Sarbanes-Oxley Act of 2002 and for alleged breaches of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment. The amended derivative complaint sought, purportedly on behalf of the Company, damages, restitution, and equitable and injunctive relief. The Company filed a motion to dismiss arguing that plaintiff failed to plead facts establishing that plaintiff was excused from making a demand on the Company’s board of directors to pursue these claims. The individual defendants joined in the Company’s motion. While the motion to dismiss was pending, plaintiff filed a motion for leave to amend her complaint. On June 11, 2007, the court granted plaintiff leave to amend and plaintiff filed her Second Amended Complaint, which alleges the same claims as the prior complaint, but adds various supporting allegations. On June 22, 2007, the Company filed a motion to dismiss the Second Amended Complaint for failure to plead demand futility adequately or, in the alternative, to stay the case until the shareholder class action litigation is resolved. The individual defendants joined in the Company’s motion. No hearing date has been scheduled and the Company does not anticipate a ruling until at least August 2007. This litigation is also in its early stages, and we cannot predict its outcome.

SEC Investigation

The SEC is conducting an investigation related to certain historical accounting practices of the Company. On November 27, 2006, the SEC served a subpoena on the Company seeking the production of documents from the period January 1, 1997 to the date of the subpoena related primarily to the types of matters identified in the Audit Committee-led investigation, including internal controls and accounting for inventories and vendor allowances. The Company produced documents in response to the subpoena on a rolling basis. On December 5, 2006, the SEC also

43

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

served subpoenas on current and former Company officers Maynard Jenkins, Martin Fraser and Don Watson. Additionally, the SEC has served subpoenas for documents and testimony on various current and former CSK employees. The Company’s Audit Committee has shared with the SEC the conclusions of the Audit Committee-led investigation. At this time, we cannot predict when the SEC investigation will be completed or what its outcome will be.

Other Litigation

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 believed that the sales tax associated with the battery cores should have been remitted to the taxing authority rather than refunded to the customers. On February 6, 2006, we received notification from the Board that their position had changed and they were no longer seeking payment of any of the original assessment.

In a separate matter, on October 13, 2006, the Board issued its Notice of Determination for the period January 1, 2001 through January 4, 2004 seeking from us $666,386, including tax, interest and penalties. Less than half of that amount related to sales tax on returned battery cores. During this period, we changed our business practices to not refund to customers the sales tax associated with battery cores returned by them to our stores, which is the position advocated by the Board. The Company expensed and paid in fiscal 2006 approximately $375,000 with respect to other items of the assessment and filed a Petition for Redetermination with respect to the sales tax associated with battery cores. Based on the Board’s determination relative to the previous assessment described above, the Company does not believe it has liability for the portion of the assessment relating to the sales tax associated with returned battery cores.

We were served on October 26, 2004 with a lawsuit that was filed in the Superior Court in San Diego, California. The case was brought by a former sales associate in California who resigned in January 2003, and purports to be a class action on behalf of all current and former California hourly store employees claiming that plaintiff and those similarly situated were not paid for: (i) all time worked (i.e. “off the clock” work), (ii) the minimum reporting time pay when they reported to work a second time in a day, (iii) all overtime due, (iv) all wages due at termination, and (v) amounts due for late or missed meal periods or rest breaks. Plaintiff also alleges that we violated certain record keeping requirements arising out of the foregoing alleged violations. The lawsuit (i) claims these alleged practices are unfair business practices, (ii) requests back pay, restitution, penalties for violations of various Labor Code sections and for failure to pay all wages due on termination, and interest for the last four years, plus attorney fees, and (iii) requests that the Company be enjoined from committing further unfair business practices. The Company believed it had meritorious defenses to all of these claims and defended the claims vigorously. In the second quarter of fiscal 2006, the court refused the plaintiff’s request to certify the class. We subsequently settled the plaintiff’s individual claim for a nominal amount and the suit was dismissed.

We currently and from time to time are involved in other litigation incidental to the conduct of our business, including but not limited to 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 these other legal claims incidental to the conduct of our business, individually or in the aggregate, will result in liabilities material to our consolidated financial position, results of operations or cash flows.

44

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 17 — Fair Value of Financial Instruments

The estimated fair values of our financial instruments, which are determined by reference to quoted market prices, where available, or are based upon comparisons to similar instruments of comparable maturities, are as follows ($ in thousands):

	February 4, 2007				January 29, 2006
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Receivables	$	43,898	$	43,898	$	29,861	$	29,861
Amounts due under term loan facility	$	349,125	$	349,125	$	—	$	—
Amounts due under senior credit facility	$	52,000	$	52,000	$	94,000	$	94,000
Obligations under 63/4% senior exchangeable notes	$	93,061	$	124,211	$	100,000	$	105,325
Obligations under 7% senior subordinated notes	$	—	$	—	$	218,279	$	183,403
Obligations under 33/8% senior exchangeable notes	$	—	$	—	$	125,000	$	118,281

Note 18 — Guarantees

In connection with the dispositionand/or sublease of certain store locations and service centers, we have indemnified the purchasers/subtenants against claims arising from environmental contamination, if any, existing on the date of disposition. In some of these cases, we are indemnified by or have recourse to an unrelated third party for claims arising from any such contamination, and also, or in the alternative, have insurance coverage that may be available to offset the potential cost of the indemnity obligation. We also indemnify third party landlords under most of our store leases against claims resulting from the occurrence of certain triggering events or conditions arising out of our operations from the leased premises. We enter into various other agreements with unrelated parties in the ordinary course of our business, which may include indemnity obligations relating to a triggering event, or condition, which is, in most cases, based on our future performance. In some cases, the indemnity obligations are triggered by our prior acts or third parties’ future performance, but are otherwise not limited in duration or monetary exposure. However, in such instances, we have determined that the likelihood of occurrence of the triggering event is remoteand/or that the potential cost to us of performance of the indemnity would not be material.

Our risk management philosophy is to limit risk in any transaction or relationship to the maximum extent reasonable in relation to commercial and other considerations. Before accepting any indemnity obligation, we make an informed risk management decision considering, among other things, the remoteness of the possibility that the triggering event will occur, the potential costs to perform any resulting indemnity obligation, possible actions to reduce the likelihood of a triggering event or to reduce the costs of performing an indemnity obligation, whether we are in fact indemnified by an unrelated third party, insurance coverage that may be available to offset the cost of the indemnity obligation, and the benefits to us from the transaction or relationship.

Because most of our indemnity obligations are not limited in duration or potential monetary exposure, we cannot calculate the maximum potential amount of future payments that could be paid under our indemnity obligations stemming from all our existing agreements. We also accrue for contingent liabilities, including those arising out of indemnity obligations, when a loss is probable and the amounts can be reasonably estimated. We are not aware of the occurrence of any triggering event or condition that would have a material adverse impact on our financial statements as a result of an indemnity obligation relating to such triggering event or condition.

We have issued standby letters of credit related to insurance coverage, lease obligations and other matters that expire during fiscal 2007. As of February 4, 2007, total amounts committed under these letters of credit were $37.5 million, which consists of $34.1 million of stand-by letters of credit and $3.4 million of commercial letters of credit.

45

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 19 — Subsequent Events

On April 27, 2007, we entered into an amendment to our $350 million Term Loan Facility entered into in June 2006 that increased the maximum leverage ratio permitted under the facility in order to minimize the possibility that we would be unable to comply with the facility’s leverage ratio covenant for the first two quarters of fiscal 2007 and revised the definition of the term “Leverage Ratio” to exclude undrawn letters of credit, which had typically been excluded from this calculation in our prior debt agreements.

On June 11, 2007, we entered into a third waiver to our Senior Credit Facility that extended the then current waiver relating to the delivery thereunder of our delinquent periodic SEC filings and related financial statements until the earliest of (i) August 15, 2007, (ii) the filing with the SEC of all such delinquent SEC filings up to and including ourform 10-Q for the first quarter of fiscal 2007, and (iii) the first date on which an event of default has occurred under the 63/4% Notes and any applicable grace period that must expire prior to acceleration of such notes has expired. When the Company renegotiated the terms of its 45/8% (now 63/4%) Notes in June 2006, we obtained an exemption until June 30, 2007 with respect to the covenant relating to the need to file and deliver to the trustee of such notes our periodic SEC filings. If we have not so filed and delivered all of our periodic SEC filings that are delinquent by June 30, 2007, and a notice of default is given to the Company by the trustee for such notes or by the holders of 25% of the notes at the earliest possible date, a default will occur under the indenture under which the 63/4% Notes were issued that would entitle the holders of the 63/4% Notes to accelerate the payment of their notes no sooner than August 31, 2007. We did not file all of our late periodic SEC filings by June 30, 2007; we do, however, expect to be able to complete all such filings by August 15, 2007, which is within the 60 day period following such a default and prior to the holders of the 63/4% Notes having the right to accelerate their notes.

Note 20 — Quarterly Results (unaudited) — Restated

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 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 products to increase.

The following table sets forth certain quarterly unaudited operating data for fiscal 2006 and 2005 which has been restated as indicated in the footnotes below. The unaudited quarterly information includes all adjustments which management considers necessary for a fair presentation of the information shown. Please note the sum of the quarterly earnings (loss) per share amounts within a fiscal year may differ from the total earnings (loss) per share for the fiscal year due to the impact of differing weighted average share outstanding calculations.

46

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Fiscal Year 2006(1)
	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
							(Restated)			(Restated)
	(In thousands, except per share data)
Results of operations
Net sales	$	463,768		$	488,742		$	483,075		$	472,191
Gross profit	$	215,195		$	232,553		$	226,887		$	221,429
Investigation and restatement costs	$	3,670		$	11,962		$	6,736		$	3,371
Operating profit	$	29,213		$	20,463		$	18,731		$	12,031
Interest expense	$	10,321		$	10,999		$	13,308		$	14,139
Loss on debt retirement	$	—		$	19,336		$	90		$	24
Income (loss) before cumulative effect of change in accounting principle, as previously reported(2)	$	18,892		$	(9,872	)	$	5,333		$	(2,132	)
Income tax (expense) benefit previously recorded(2)		(7,735	)		4,055			(1,974	)		663
Adjustment to income tax (expense) benefit(3)		—			—			(201	)		201
Income (loss) before cumulative effect of change in accounting principle, as restated(2)(3)	$	11,157		$	(5,817	)	$	3,158		$	(1,268	)
Cumulative effect of change in accounting principle, net of tax	$	966		$	—		$	—		$	—
Net income (loss)
As previously reported	$	10,191		$	(5,817	)	$	3,359		$	(1,469	)
Adjustment to income tax (expense) benefit(3)		—			—			(201	)		201
As restated	$	10,191		$	(5,817	)	$	3,158		$	(1,268	)
Basic earnings (loss) per share:
Income (loss) before cumulative effect of change in accounting principle
As previously reported	$	0.25		$	(0.13	)	$	0.08		$	(0.03	)
Adjustment to income tax (expense) benefit(3)		—			—			(0.01	)		0.00
As restated	$	0.25		$	(0.13	)	$	0.07		$	(0.03	)
Cumulative effect of change in accounting principle	$	0.02			—			—			—
Net income (loss) per share
As previously reported	$	0.23		$	(0.13	)	$	0.08		$	(0.03	)
Adjustment to income tax (expense) benefit(3)		—			—			(0.01	)		0.00
As restated	$	0.23		$	(0.13	)	$	0.07		$	(0.03	)
Diluted earnings (loss) per share:
Income (loss) before cumulative effect of change in accounting principle
As previously reported	$	0.25		$	(0.13	)	$	0.08		$	(0.03	)
Adjustment to income tax (expense) benefit(3)		—			—			(0.01	)		0.00
As restated	$	0.25		$	(0.13	)	$	0.07		$	(0.03	)
Cumulative effect of change in accounting principle	$	0.02			—			—			—
Net income (loss) per share
As previously reported	$	0.23		$	(0.13	)	$	0.08		$	(0.03	)
Adjustment to income tax (expense) benefit(3)		—			—			(0.01	)		0.00
As restated	$	0.23		$	(0.13	)	$	0.07		$	(0.03	)
Shares used in computing per share amounts
Basic		43,844			43,855			43,867			43,937
Diluted(4)		44,218			43,855			44,050			43,937

47

CSK AUTO CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Fiscal Year 2005(1)
	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
	(Restated)			(Restated)			(Restated)			(Restated)
	(In thousands, except per share data)
Results of operations
Net sales	$	405,277		$	426,604		$	415,919		$	403,485
Gross profit, as previously reported	$	188,540		$	199,298		$	195,302		$	203,471
Adjustment to vendor allowances(5)		6,464			3,442			(275	)		(9,631	)
Gross profit, as restated	$	195,004		$	202,740		$	195,027		$	193,840
Operating profit, as previously reported	$	30,202		$	37,584		$	33,258		$	29,193
Adjustment to vendor allowances(5)		6,464			3,442			(275	)		(9,631	)
Operating profit, as restated	$	36,666		$	41,026		$	32,983		$	19,562
Interest expense	$	8,726		$	8,439		$	7,554		$	8,880
Loss on debt retirement	$	—		$	1,600		$	—		$	—
Net income, as previously reported	$	13,058		$	16,749		$	15,664		$	12,319
Adjustment to vendor allowances(5)		6,464			3,442			(275	)		(9,631	)
Adjustment to income tax (expense) benefit(5)		(2,540	)		(1,355	)		108			3,787
Net income, as restated	$	16,982		$	18,836		$	15,497		$	6,475
Basic earnings per share, as previously reported:	$	0.29		$	0.37		$	0.36		$	0.28
Adjustment to vendor allowances(5)		0.14			0.08			(0.01	)		(0.22	)
Adjustment to income tax (expense) benefit(5)		(0.05	)		(0.03	)		0.00			0.09
Basic earnings per share, as restated	$	0.38		$	0.42		$	0.35		$	0.15
Diluted earnings per share, as previously reported:	$	0.29		$	0.37		$	0.36		$	0.28
Adjustment to vendor allowances(5)		0.14			0.07			(0.01	)		(0.22	)
Adjustment to income tax (expense) benefit(5)		(0.06	)		(0.03	)		0.00			0.09
Diluted earnings per share, as restated	$	0.37		$	0.41		$	0.35		$	0.15
Shares used in computing per share amounts
Basic		45,130			45,135			43,787			43,816
Diluted		45,494			45,539			44,121			44,086

(1)	Our fiscal year consists of 52 or 53 weeks, ends on Sunday nearest to January 31 and is named for the calendar year just ended. All fiscal years presented had 52 weeks except fiscal 2006, which contained 53 weeks. The additional week in fiscal 2006 is included in the fourth quarter.
(2)	In our Annual Report onForm 10-K for fiscal 2006 filed on July 9, 2007 (“Original Annual Report”), we inadvertently incorrectly reported the pretax balance in the “Income (loss) before cumulative effect of change in accounting principle, as previously reported” line for each interim period in fiscal 2006. In this amendment, we are replacing the balance with the correct after tax amount.
(3)	The income tax provisions recorded for the third and fourth quarters of fiscal 2006 have been restated for a clerical error which overstated net income in the third quarter of fiscal 2006 and overstated net loss in the fourth quarter of fiscal 2006 by identical amounts. Annual results of operations are not affected.
(4)	In our Original Annual Report, we incorrectly reported diluted shares for the second and fourth quarters of fiscal 2006. Losses were reported for these periods. In the amendment, we are replacing the diluted shares with the basic shares outstanding. This had no impact on the diluted loss per share amounts reported for the second and fourth quarters of fiscal 2006.
(5)	We have restated the results of operations for each of the interim periods in fiscal 2005 to correct for an inadvertent error in the manner in which we recorded vendor allowances in interim periods and the resulting impact on income tax expense. The error only affected interim periods and not the annual results of operations for fiscal 2005.

48

PART IV

Item 15.   Exhibit and Financial Statement Schedules

(a)(1) The following consolidated financial statements of CSK Auto Corporation are included in Item 8, “Financial Statements and Supplementary Data” of thisForm 10-K/A.

Consolidated Statements of Operations — Fiscal Years Ended February 4, 2007, January 29, 2006 and January 30, 2005

Consolidated Balance Sheets — February 4, 2007 and January 29, 2006

Consolidated Statements of Cash Flows — Fiscal Years Ended February 4, 2007, January 29, 2006 and January 30, 2005

Consolidated Statements of Stockholders’ Equity — Fiscal Years Ended February 4, 2007, January 29, 2006 and January 30, 2005

Notes to Consolidated Financial Statements

(a)(2) No financial statement schedules are filed with thisForm 10-K/A.

(a)(3) and (b) Exhibits:

The Exhibit Index included at the end of thisForm 10-K/A is incorporated herein by reference.

49

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this  day of August, 2007.

CSK AUTO CORPORATION

By: 

Maynard L. Jenkins, Jr.

Chairman and Chief Executive Officer

EXHIBIT INDEX

Exhibit
Number
	31	.01*	Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.02*	Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.01*	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.