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LKQ Corporation Announces Financial Results for Second Quarter 2016

  • Revenue growth of 33.3% to $2.45 billion
  • Organic revenue growth for parts and services of 5.4%
  • Net income growth of 17.6%; adjusted net income growth of 34.0%
  • Second quarter 2016 diluted EPS of $0.46; adjusted diluted EPS of $0.55
  • Annual earnings guidance increased

CHICAGO, July 28, 2016 (GLOBE NEWSWIRE) -- LKQ Corporation (Nasdaq:LKQ) today reported record revenue for the second quarter of 2016 of $2.45 billion, an increase of 33.3% as compared to $1.84 billion in the second quarter of 2015. Net income for the second quarter of 2016 was $140.7 million, an increase of 17.6% as compared to $119.7 million for the same period of 2015. On an adjusted basis, net income was $169.2 million, an increase of 34.0% as compared to the $126.3 million for the same period of 2015. Diluted earnings per share for the second quarter of 2016 was $0.46, an increase of 17.9% as compared to the $0.39 for the same period of 2015. On an adjusted basis, diluted earnings per share was $0.55 in the second quarter of 2016 reflecting a 34.1% increase over $0.41 for the same period of 2015.  See the reconciliation of net income and diluted earnings per share to adjusted net income and adjusted diluted earnings per share included with this press release.

“Despite tough comparable periods and the carryover impact of the mild winter in North America, organic revenue growth for parts and services was a respectable 5.4% during the quarter, demonstrating the resiliency of our operating and diversification strategy," stated Robert Wagman, President and Chief Executive Officer of LKQ Corporation. “We improved gross margins in our North American operations, which included 40 basis points of improvement from the aftermarket procurement initiatives implemented during 2016. Our European segment continued to show solid improvement in the second quarter, with its segment EBITDA margins increasing 40 basis points sequentially and 30 basis points year-over-year, even after absorbing the incremental cost associated with the new distribution facility in Tamworth, England. I am also pleased with the overall earnings growth achieved in the quarter, which is partly attributable to the smooth integration of the Rhiag and PGW acquisitions we completed earlier this year.”

On a six month year-to-date basis, revenue was $4.37 billion, an increase of 21.0% from $3.61 billion for the comparable period of 2015. Parts and services organic revenue growth for the first six months of 2016 was 5.8%. Net income for the first six months of 2016 was $248.5 million, as compared to $226.8 million for the first half of 2015. Diluted earnings per share was $0.81 for the first six months of 2016, reflecting a 9.5% increase as compared to $0.74 for the comparable period of 2015. On an adjusted basis, diluted earnings per share was $0.97 in the first six months of 2016 reflecting a 22.8% increase over $0.79 for the same period of 2015.

Balance Sheet and Liquidity

Cash flow from operations totaled $355.2 million on a six month year-to-date basis, of which approximately $102 million was invested in capital expenditures and other long term assets. As of June 30, 2016, the balance sheet reflected cash and equivalents of $273 million and outstanding debt of $3.3 billion. Total availability under the Company’s credit facility at June 30, 2016 was approximately $1.1 billion.

Other Events

In addition to the PGW acquisition, during the second quarter of 2016, LKQ acquired a distributor of aftermarket automotive products in Belgium, and LKQ’s European operations opened seven new Euro Car Parts branches.

On May 23, 2016, the Company announced that S&P Dow Jones Indices added LKQ Corporation to the S&P 500 Index. The addition became effective at the close of trading on May 20, 2016.

Company Outlook

The Company updated its guidance for 2016.

  Updated Guidance Prior Guidance
Organic revenue growth (parts & services) 5.5% to 7.0% 6.0% to 8.0%
Adjusted net income* $555 million to $580 million $545 million to $575 million
Adjusted diluted EPS* $1.79 to $1.87 $1.76 to $1.86
Cash flow from operations $585 million to $635 million $575 million to $625 million
Capital expenditures $200 million to $225 million $200 million to $225 million

*Non-GAAP measures. See the table accompanying this release that reconciles forecasted net income and diluted EPS to forecasted adjusted net income and adjusted diluted EPS.

Our revised 2016 guidance is based on current conditions (including acquisitions completed through June 30, 2016) and excludes the impact of restructuring and acquisition related expenses; loss on debt extinguishment; amortization of acquired intangibles; gains or losses related to acquisitions or divestitures (including changes in the fair value of contingent consideration liabilities); and capital spending related to future business acquisitions.

The updated guidance for 2016 is based on scrap prices remaining at current prices and exchange rates for the British pound, Euro and Canadian dollar holding near current levels. Changes in these figures may impact our ability to achieve the updated guidance.

Conference Call Details

On July 28, 2016 at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) members of senior management will host a conference call and Webcast to discuss the Company's results. To access the investor conference call, please dial (877) 407-0668. International access to the call may be obtained by dialing (201) 689-8558.

Webcast and Presentation Details

The audio webcast and accompanying slide presentation can be accessed at www.lkqcorp.com in the Investor Relations section.

A replay of the conference call will be available by telephone at (877) 660-6853 or (201) 612-7415 for international calls. The telephone replay will require you to enter conference ID: 13640380#. An online replay of the audio webcast will be available on the Company's website. Both formats of replay will be available through August 18, 2016. Please allow approximately two hours after the live presentation before attempting to access the replay.

About LKQ Corporation

LKQ Corporation (www.lkqcorp.com) is a leading provider of alternative and specialty parts to repair and accessorize automobiles and other vehicles.  LKQ is also a leader in the design, production and supply of automotive glass to OEMs. LKQ has operations in North America, Europe, China and Taiwan. LKQ offers its customers a broad range of replacement systems, components, equipment and parts to repair and accessorize automobiles, trucks, and recreational and performance vehicles.

Forward Looking Statements

The statements in this press release that are not historical in nature are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements regarding our outlook, guidance, expectations, beliefs, hopes, intentions and strategies. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us. Actual events or results may differ materially from those expressed or implied in the forward looking statements as a result of various factors.

These factors include the following (not necessarily in order of importance):

  • changes in economic and political activity in the U.S. and other countries in which we are located or do business, including the U.K. withdrawal from the European Union, and the impact of these changes on our businesses, the demand for our products and our ability to obtain financing for operations;
  • increasing competition in the automotive parts industry;
  • fluctuations in the pricing of new original equipment manufacturer (“OEM”) replacement products;
  • changes in the level of acceptance and promotion of alternative automotive parts by insurance companies and auto repairers;
  • changes to our business relationships with insurance companies or changes by insurance companies to their business practices relating to the use of our products;
  • our ability to identify sufficient acquisition candidates at reasonable prices to maintain our growth objectives;
  • our ability to integrate, realize expected synergies, and successfully operate acquired companies and any companies acquired in the future, and the risks associated with these companies;
  • restrictions or prohibitions on selling certain aftermarket products to the extent OEMs seek and obtain more design patents than they have in the past and are successful in asserting infringement of these patents and defending their validity;
  • variations in the number of vehicles manufactured and sold, vehicle accident rates, miles driven, and the age profile of vehicles in accidents;
  • fluctuations in the prices of fuel, scrap metal and other commodities;
  • changes in state or federal laws or regulations affecting our business;
  • higher costs and the resulting potential inability to service our customers to the extent that our suppliers decide to discontinue business relationships with us;
  • price increases, interruptions or disruptions to the supply of vehicle parts from aftermarket suppliers and from salvage auctions;
  • changes in the demand for our products and the supply of our inventory due to severity of weather and seasonality of weather patterns;
  • the risks associated with operating in foreign jurisdictions, including foreign laws and economic and political instabilities;
  • declines in the values of our assets;
  • additional unionization efforts, new collective bargaining agreements, and work stoppages;
  • our ability to develop and implement the operational and financial systems needed to manage our operations;
  • interruptions, outages or breaches of our operational systems, security systems, or infrastructure as a result of attacks on, or malfunctions of, our systems;
  • product liability claims by the end users of our products or claims by other parties who we have promised to indemnify for product liability matters;
  • costs associated with recalls of the products we sell;
  • inaccuracies in the data relating to our industry published by independent sources upon which we rely;
  • currency fluctuations in the U.S. dollar, pound sterling and euro versus other currencies;
  • our ability to obtain financing on acceptable terms to finance our growth;
  • our ability to satisfy our debt obligations and to operate within the limitations imposed by financing agreements; and
  • other risks that are described in our Form 10-K filed February 25, 2016 and in other reports filed by us from time to time with the Securities and Exchange Commission.

You should not place undue reliance on these forward-looking statements. All of these forward-looking statements are based on our expectations as of the date of this press release. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

/EIN News/ --

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Income
( In thousands, except per share data )
                     
                     
        Three Months Ended   Six Months Ended
        June 30,   June 30,
                     
          2016       2015       2016       2015  
                     
  Revenue   $ 2,450,693     $ 1,838,070     $ 4,372,169     $ 3,611,982  
                     
  Cost of goods sold     1,528,746       1,114,126       2,689,785       2,188,559  
                     
    Gross margin     921,947       723,944       1,682,384       1,423,423  
                     
  Facility and warehouse expenses     178,670       136,379       336,275       269,036  
                     
  Distribution expenses     184,331       150,039       336,674       291,753  
                     
  Selling, general and administrative expenses     254,153       205,796       472,471       409,037  
                     
  Restructuring and acquisition related expenses     9,080       1,663       23,891       8,151  
                     
  Depreciation and amortization     52,529       29,782       84,217       59,235  
                     
    Operating income     243,184       200,285       428,856       386,211  
                     
  Other expense (income):                
    Interest expense, net     26,381       14,622       40,973       29,528  
    Loss on debt extinguishment     -       -       26,650       -  
    Gains on foreign exchange contracts - acquisition related     -       -       (18,342 )     -  
    Other expense (income), net     1,339       97       (1,550 )     2,016  
                     
    Total other expense, net     27,720       14,719       47,731       31,544  
                     
    Income before provision for income taxes     215,464       185,566       381,125       354,667  
                     
  Provision for income taxes     74,874       64,682       132,441       124,780  
                     
  Equity in earnings of unconsolidated subsidiaries     147       (1,162 )     (215 )     (3,070 )
                     
    Net income   $ 140,737     $ 119,722     $ 248,469     $ 226,817  
                     
                     
  Earnings per share:                
    Basic   $ 0.46     $ 0.39     $ 0.81     $ 0.75  
                     
    Diluted   $ 0.46     $ 0.39     $ 0.81     $ 0.74  
                     
                     
  Weighted average common shares outstanding:                
    Basic     306,718       304,286       306,437       304,145  
                     
    Diluted     308,898       307,247       308,634       307,105  
                     

 

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
( In thousands, except share and per share data )
             
             
        June 30,   December 31,
          2016       2015  
    Assets        
             
Current Assets:        
  Cash and equivalents   $ 273,203     $ 87,397  
  Receivables, net     995,153       590,160  
  Inventories, net     1,890,536       1,556,552  
  Prepaid expenses and other current assets     139,536       106,603  
    Total Current Assets     3,298,428       2,340,712  
             
Property, Plant and Equipment, net     1,055,046       696,567  
Intangible Assets:        
  Goodwill     3,059,488       2,319,246  
  Other intangibles, net     630,360       215,117  
Other Assets     142,622       76,195  
             
    Total Assets   $ 8,185,944     $ 5,647,837  
             
    Liabilities and Stockholders' Equity        
             
Current Liabilities:        
  Accounts payable   $ 735,138     $ 415,588  
  Accrued expenses:        
    Accrued payroll-related liabilities     102,962       86,527  
    Other accrued expenses     228,656       162,225  
  Other current liabilities     40,794       31,596  
  Current portion of long-term obligations     60,832       56,034  
             
    Total Current Liabilities     1,168,382       751,970  
             
Long-Term Obligations, Excluding Current Portion     3,274,629       1,528,668  
Deferred Income Taxes     225,338       127,239  
Other Noncurrent Liabilities     209,956       125,278  
             
Commitments and Contingencies        
             
Stockholders' Equity:        
  Common stock, $0.01 par value, 1,000,000,000        
    shares authorized, 306,785,582 and 305,574,384        
    shares issued and outstanding at June 30, 2016        
    and December 31, 2015, respectively     3,067       3,055  
  Additional paid-in capital     1,111,221       1,090,713  
  Retained earnings     2,374,853       2,126,384  
  Accumulated other comprehensive loss     (181,502 )     (105,470 )
             
    Total Stockholders' Equity     3,307,639       3,114,682  
             
    Total Liabilities and Stockholders' Equity   $ 8,185,944     $ 5,647,837  
             
             
             

 

  LKQ CORPORATION AND SUBSIDIARIES
  Unaudited Condensed Consolidated Statements of Cash Flows
( In thousands )
           
          Six Months Ended
          June 30,
            2016       2015  
               
  CASH FLOWS FROM OPERATING ACTIVITIES:        
    Net income   $ 248,469     $ 226,817  
    Adjustments to reconcile net income to net cash        
      provided by operating activities:        
      Depreciation and amortization     90,882       61,714  
      Stock-based compensation expense     11,425       11,114  
      Excess tax benefit from stock-based payments     (6,685 )     (6,737 )
      Loss on debt extinguishment     26,650       -  
      Gains on foreign exchange contracts - acquisition related     (18,342 )     -  
      Other     7,193       5,880  
      Changes in operating assets and liabilities, net of        
      effects from acquisitions:        
      Receivables, net     (83,515 )     (48,995 )
      Inventories, net     42,548       38,399  
      Prepaid income taxes/income taxes payable     23,029       21,052  
      Accounts payable     31,004       (18,597 )
      Other operating assets and liabilities     (17,428 )     (7,948 )
               
      Net cash provided by operating activities     355,230       282,699  
               
  CASH FLOWS FROM INVESTING ACTIVITIES:        
    Purchases of property, plant and equipment     (102,319 )     (66,763 )
    Acquisitions, net of cash acquired     (1,268,841 )     (37,208 )
    Other investing activities, net     29,655       (5,209 )
               
      Net cash used in investing activities     (1,341,505 )     (109,180 )
               
  CASH FLOWS FROM FINANCING ACTIVITIES:        
    Proceeds from exercise of stock options     4,889       3,288  
    Excess tax benefit from stock-based payments     6,685       6,737  
    Taxes paid related to net share settlements of stock-based      
    compensation awards     (2,281 )     (5,243 )
    Proceeds from issuance of Euro notes     563,450       -  
    Repayment of Rhiag debt and related payments     (543,347 )     -  
    Net borrowings (payments) of long-term and other obligations,      
      excluding Rhiag debt repayments and issuance of Euro notes   1,164,740       (149,703 )
    Debt issuance costs     (16,171 )     -  
               
      Net cash provided by (used in) financing activities     1,177,965       (144,921 )
               
  Effect of exchange rate changes on cash and equivalents     (5,884 )     220  
               
  Net increase in cash and equivalents     185,806       28,818  
               
  Cash and equivalents, beginning of period     87,397       114,605  
               
  Cash and equivalents, end of period   $ 273,203     $ 143,423  
               

 

The following unaudited tables compare certain third party revenue categories:        
                   
      Three Months Ended        
      June 30,        
                   
        2016       2015     $ Change   % Change
      (In thousands)        
Included in Unaudited Condensed Consolidated              
Statements of Income of LKQ Corporation              
                   
North America   $ 962,954     $ 912,159     $ 50,795       5.6 %
Europe       822,959       508,731       314,228       61.8 %
Specialty     335,972       283,458       52,514       18.5 %
Glass       210,104       -       210,104       n/m  
Parts and services   2,331,989       1,704,348       627,641       36.8 %
Other       118,704       133,722       (15,018 )     (11.2 %)
Total     $ 2,450,693     $ 1,838,070     $ 612,623       33.3 %
                   
Revenue changes by category for the three months ended June 30, 2016 vs. 2015:        
                   
               
      Revenue Change Attributable to:    
      Organic   Acquisition   Foreign Exchange   Total Change (1)
                   
North America     3.1 %     2.8 %     (0.3 %)     5.6 %
Europe       8.0 %     57.5 %     (3.7 %)     61.8 %
Specialty     8.0 %     11.1 %     (0.5 %)     18.5 %
Glass       n/m       n/m       n/m       n/m  
Parts and services   5.4 %     32.8 %     (1.4 %)     36.8 %
Other       (16.2 %)     5.2 %     (0.2 %)     (11.2 %)
Total       3.8 %     30.8 %     (1.3 %)     33.3 %
                   
                   
      Six Months Ended        
      June 30,        
                   
        2016       2015     $ Change   % Change
      (In thousands)        
Included in Unaudited Condensed Consolidated              
Statements of Income of LKQ Corporation              
                   
North America   $ 1,948,210     $ 1,830,492     $ 117,718       6.4 %
Europe       1,368,666       994,827       373,839       37.6 %
Specialty     623,334       523,945       99,389       19.0 %
Glass       210,104       -       210,104       n/m  
Parts and services   4,150,314       3,349,264       801,050       23.9 %
Other       221,855       262,718       (40,863 )     (15.6 %)
Total     $ 4,372,169     $ 3,611,982     $ 760,187       21.0 %
                   
Revenue changes by category for the six months ended June 30, 2016 vs. 2015:        
                   
               
      Revenue Change Attributable to:    
      Organic   Acquisition   Foreign Exchange   Total Change (1)
                   
North America     4.0 %     3.0 %     (0.5 %)     6.4 %
Europe       7.5 %     34.2 %     (4.1 %)     37.6 %
Specialty     9.3 %     10.3 %     (0.6 %)     19.0 %
Glass       n/m       n/m       n/m       n/m  
Parts and services   5.8 %     19.7 %     (1.6 %)     23.9 %
Other       (20.6 %)     5.2 %     (0.2 %)     (15.6 %)
Total       3.9 %     18.6 %     (1.5 %)     21.0 %
                   
(1) The sum of the individual revenue change components may not equal the total percentage change due to rounding.
                   

 

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Supplementary Data
( In thousands, except per share data )
                           
                           
        Three Months Ended June 30,
                           
Operating Highlights     2016       2015        
            % of       % of      
            Revenue (1)       Revenue (1) Change % Change
                           
  Revenue   $ 2,450,693       100.0 %   $ 1,838,070       100.0 %   $ 612,623     33.3 %
                           
  Cost of goods sold     1,528,746       62.4 %     1,114,126       60.6 %     414,620     37.2 %
                           
    Gross margin     921,947       37.6 %     723,944       39.4 %     198,003     27.4 %
                           
  Facility and warehouse expenses     178,670       7.3 %     136,379       7.4 %     42,291     31.0 %
                           
  Distribution expenses     184,331       7.5 %     150,039       8.2 %     34,292     22.9 %
                           
  Selling, general and administrative expenses     254,153       10.4 %     205,796       11.2 %     48,357     23.5 %
                           
  Restructuring and acquisition related expenses     9,080       0.4 %     1,663       0.1 %     7,417     n/m  
                           
  Depreciation and amortization     52,529       2.1 %     29,782       1.6 %     22,747     76.4 %
                           
    Operating income     243,184       9.9 %     200,285       10.9 %     42,899     21.4 %
                           
  Other expense:                      
    Interest expense, net     26,381       1.1 %     14,622       0.8 %     11,759     80.4 %
    Loss on debt extinguishment     -       0.0 %     -       0.0 %     -     n/m  
    Gains on foreign exchange contracts - acquisition related     -       0.0 %     -       0.0 %     -     n/m  
    Other expense, net     1,339       0.1 %     97       0.0 %     1,242     n/m  
                           
    Total other expense, net     27,720       1.1 %     14,719       0.8 %     13,001     88.3 %
                           
    Income before provision for income taxes     215,464       8.8 %     185,566       10.1 %     29,898     16.1 %
                           
  Provision for income taxes     74,874       3.1 %     64,682       3.5 %     10,192     15.8 %
                           
  Equity in earnings of unconsolidated subsidiaries     147       0.0 %     (1,162 )     (0.1 %)     1,309     n/m  
                           
    Net income   $ 140,737       5.7 %   $ 119,722       6.5 %   $ 21,015     17.6 %
                           
                           
  Earnings per share:                      
    Basic   $ 0.46         $ 0.39         $ 0.07     17.9 %
                           
    Diluted   $ 0.46         $ 0.39         $ 0.07     17.9 %
                           
                           
  Weighted average common shares outstanding:                      
    Basic     306,718           304,286           2,432     0.8 %
                           
    Diluted     308,898           307,247           1,651     0.5 %
                           
                           
   (1 ) The sum of the individual percentage of revenue components may not equal the total due to rounding.
                           

 

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Supplementary Data
( In thousands, except per share data )
                           
                           
        Six Months Ended June 30,
                           
Operating Highlights     2016       2015        
            % of       % of      
            Revenue (1)       Revenue (1)   Change % Change
                           
  Revenue   $ 4,372,169       100.0 %   $ 3,611,982       100.0 %   $ 760,187     21.0 %
                           
  Cost of goods sold     2,689,785       61.5 %     2,188,559       60.6 %     501,226     22.9 %
                           
    Gross margin     1,682,384       38.5 %     1,423,423       39.4 %     258,961     18.2 %
                           
  Facility and warehouse expenses     336,275       7.7 %     269,036       7.4 %     67,239     25.0 %
                           
  Distribution expenses     336,674       7.7 %     291,753       8.1 %     44,921     15.4 %
                           
  Selling, general and administrative expenses     472,471       10.8 %     409,037       11.3 %     63,434     15.5 %
                           
  Restructuring and acquisition related expenses     23,891       0.5 %     8,151       0.2 %     15,740     n/m  
                           
  Depreciation and amortization     84,217       1.9 %     59,235       1.6 %     24,982     42.2 %
                           
    Operating income     428,856       9.8 %     386,211       10.7 %     42,645     11.0 %
                           
  Other expense (income):                      
    Interest expense, net     40,973       0.9 %     29,528       0.8 %     11,445     38.8 %
    Loss on debt extinguishment     26,650       0.6 %     -       0.0 %     26,650     n/m  
    Gains on foreign exchange contracts - acquisition related     (18,342 )     (0.4 %)     -       0.0 %     (18,342 )   n/m  
    Other (income) expense, net     (1,550 )     (0.0 %)     2,016       0.1 %     (3,566 )   n/m  
                           
    Total other expense, net     47,731       1.1 %     31,544       0.9 %     16,187     51.3 %
                           
    Income before provision for income taxes     381,125       8.7 %     354,667       9.8 %     26,458     7.5 %
                           
  Provision for income taxes     132,441       3.0 %     124,780       3.5 %     7,661     6.1 %
                           
  Equity in earnings of unconsolidated subsidiaries     (215 )     (0.0 %)     (3,070 )     (0.1 %)     2,855     93.0 %
                           
    Net income   $ 248,469       5.7 %   $ 226,817       6.3 %   $ 21,652     9.5 %
                           
                           
  Earnings per share:                      
    Basic   $ 0.81         $ 0.75         $ 0.06     8.0 %
                           
    Diluted   $ 0.81         $ 0.74         $ 0.07     9.5 %
                           
                           
  Weighted average common shares outstanding:                      
    Basic     306,437           304,145           2,292     0.8 %
                           
    Diluted     308,634           307,105           1,529     0.5 %
                           
    (1 ) The sum of the individual percentage of revenue components may not equal the total due to rounding.          

 

The following unaudited table reconciles Net Income to EBITDA:             
                     
        Three Months Ended   Six Months Ended
        June 30,   June 30,
                     
          2016       2015       2016       2015  
        (In thousands)
                     
Net income     $ 140,737     $ 119,722     $ 248,469     $ 226,817  
Depreciation and amortization       57,716       31,045       90,882       61,714  
Interest expense, net       26,381       14,622       40,973       29,528  
Loss on debt extinguishment (1)       -       -       26,650       -  
Provision for income taxes       74,874       64,682       132,441       124,780  
                     
Earnings before interest, taxes, depreciation                  
  and amortization (EBITDA)     $ 299,708     $ 230,071     $ 539,415     $ 442,839  
                     
EBITDA as a percentage of revenue       12.2 %     12.5 %     12.3 %     12.3 %
                     
  (1 ) Loss on debt extinguishment is considered a component of interest in calculating EBITDA.                  
                     
  We present EBITDA as we believe it is a supplemental financial measure that offers investors, securities analysts and other interested parties useful information to evaluate our operating performance and the value of our business.  EBITDA provides insight into our profitability trends, and allows investors, securities analysts and other interested parties to analyze our operating results with and without the impact of depreciation, amortization, interest (which includes loss on debt extinguishment) and income tax expense. We believe EBITDA is used by investors, securities analysts and other interested parties in evaluating the operating performance and the value of other companies, many of which present EBITDA when reporting their results.  EBITDA should not be construed as an alternative to operating income, net income or net cash provided by (used in) operating activities, as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companies that report EBITDA information calculate EBITDA in the same manner as we do and, accordingly, our calculation is not necessarily comparable to similarly named measures of other companies and may not be an appropriate measure for performance relative to other companies.

 

The following unaudited table compares revenue and Segment EBITDA by reportable segment:
 
                         
                         
      Three Months Ended   Six Months Ended
      June 30,   June 30,
                         
        2016       2015       2016     2015  
(In thousands)       % of
Revenue
    % of
Revenue
    % of
Revenue
  % of
Revenue
                         
Revenue                        
North America     $ 1,080,520       $ 1,045,151       $ 2,168,097     $ 2,091,324    
Europe       824,206         509,903         1,370,967       997,249    
Specialty       337,066         284,330         625,379       525,552    
Glass       210,178         -         210,178       -    
Eliminations       (1,277 )       (1,314 )       (2,452 )     (2,143 )  
                         
Total revenue     $ 2,450,693       $ 1,838,070       $ 4,372,169     $ 3,611,982    
                         
Segment EBITDA                        
North America     $ 163,825     15.2 %   $ 138,880     13.3 %   $ 311,200     14.4 % $ 288,268     13.8 %
Europe       89,982     10.9 %     53,943     10.6 %     147,480     10.8 %   100,466     10.1 %
Specialty       41,792     12.4 %     40,198     14.1 %     73,530     11.8 %   65,602     12.5 %
Glass       23,301     11.1 %     -     n/m       23,301     11.1 %   -     n/m  
                         
Total Segment EBITDA       318,900     13.0 %     233,021     12.7 %     555,511     12.7 %   454,336     12.6 %
                         
Deduct:                        
Restructuring and acquisition related expenses       9,080         1,663         23,891       8,151    
Inventory step-up adjustment – acquisition related       10,213         -         10,213       -    
Change in fair value of contingent consideration liabilities       46         125         119       276    
                         
Add:                        
Equity in earnings of unconsolidated subsidiaries       147         (1,162 )       (215 )     (3,070 )  
Gains on foreign exchange contracts - acquisition related       -         -         18,342       -    
                         
EBITDA     $ 299,708     12.2 %   $ 230,071     12.5 %   $ 539,415     12.3 % $ 442,839     12.3 %
                         
                         
The key measure of segment profit or loss reviewed by our chief operating decision maker, who is our Chief Executive Officer, is Segment EBITDA. Segment EBITDA is used by management to compare profitability among our segments and evaluate business strategies. We also consider Segment EBITDA to be a useful financial measure in evaluating our operating performance, as it provides investors, securities analysts and other interested parties with supplemental information regarding the underlying trends in our ongoing operations.  Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. Segment EBITDA is calculated as EBITDA excluding restructuring and acquisition related expenses, change in fair value of contingent consideration liabilities, other acquisition related gains and losses and equity in earnings of unconsolidated subsidiaries. EBITDA, which is the basis for Segment EBITDA, is calculated as net income excluding depreciation, amortization, interest (which includes loss on debt extinguishment) and income tax expense.
                         

 

The following unaudited table reconciles Net Income and Diluted Earnings per Share to Adjusted Net Income and Adjusted Diluted Earnings per Share, respectively:
                   
                   
                   
      Three Months Ended   Six Months Ended
      June 30,   June 30,
                   
        2016       2015       2016       2015  
(In thousands, except per share data)                  
                   
Net income     $ 140,737     $ 119,722     $ 248,469     $ 226,817  
                   
Adjustments:                  
                   
Restructuring and acquisition related expenses       9,080       1,663       23,891       8,151  
Loss on debt extinguishment       -       -       26,650       -  
Amortization of acquired intangibles       24,250       8,225       33,151       16,496  
Inventory step-up adjustment – acquisition related       10,213       -       10,213       -  
Change in fair value of contingent consideration liabilities       46       125       119       276  
Gains on foreign exchange contracts - acquisition related       -       -       (18,342 )     -  
Tax effect of adjustments       (15,130 )     (3,450 )     (26,257 )     (8,667 )
                   
Adjusted net income     $ 169,196     $ 126,285     $ 297,894     $ 243,073  
                   
                   
Weighted average diluted common shares outstanding       308,898       307,247       308,634       307,105  
                   
Diluted earnings per share     $ 0.46     $ 0.39     $ 0.81     $ 0.74  
                   
Adjusted diluted earnings per share     $ 0.55     $ 0.41     $ 0.97     $ 0.79  
                   
                   
We present Adjusted Net Income and Adjusted Diluted Earnings per Share (“EPS”) as we believe these measures are useful for evaluating the core operating performance of our business across reporting periods and in analyzing the company’s historical operating results. Additionally, these measures are used by management in its decision making and overall evaluation of operating performance of the company and are included in the metrics used to determine incentive compensation for our senior management. In the table above, Adjusted Net Income and Adjusted Diluted EPS are defined as Net Income and Diluted EPS adjusted to eliminate the impact of restructuring and acquisition related expenses, loss on debt extinguishment, amortization of acquired intangibles, the change in fair value of contingent consideration liabilities, other acquisition related gains and losses, and the tax effect of these adjustments. The tax effect of these adjustments is calculated using the effective tax rate for the applicable period. Adjusted Net Income and Adjusted Diluted EPS should not be construed as alternatives to Net Income or Diluted EPS as determined in accordance with accounting principles generally accepted in the United States.  In addition, because not all companies use identical calculations, this presentation of Adjusted Net Income and Adjusted Diluted EPS may not be comparable to similarly titled measures of other companies.
                   

 

The following unaudited table reconciles Forecasted Net Income and Diluted Earnings per Share to Forecasted Adjusted Net Income and Adjusted Diluted Earnings per Share, respectively:
           
           
           
      Forecasted
      Fiscal Year 2016
           
      Minimum
Guidance
  Maximum
Guidance
(In millions, except per share data)          
           
Net income     $ 478     $ 503  
           
Adjustments:          
           
Restructuring and acquisition related expenses       24       24  
Loss on debt extinguishment       27       27  
Amortization of acquired intangibles       75       75  
Inventory step-up adjustment – acquisition related       10       10  
Gains on foreign exchange contracts - acquisition related       (18 )     (18 )
Tax effect of adjustments       (41 )     (41 )
           
Adjusted net income     $ 555     $ 580  
           
           
Weighted average diluted common shares outstanding       310       310  
           
Diluted earnings per share     $ 1.54     $ 1.63  
           
Adjusted diluted earnings per share     $ 1.79     $ 1.87  
           
           
Refer to the discussion of Adjusted Net Income and Adjusted Diluted Earnings per Share for details on the calculation of these measures. With the exception of net income and amortization of acquired intangibles, we have not forecasted amounts for the fiscal year 2016 beyond what was incurred as of June 30, 2016.
                   

 

The following unaudited table reconciles consolidated growth for Parts & Services Revenue and Total Revenue to constant currency revenue growth for the same measure:
             
    Three Months Ended       Three Months Ended
    June 30, 2016       June 30, 2016
Parts & Services       Total Revenue    
Revenue growth as reported     36.8 %   Revenue growth as reported     33.3 %
Less: Currency impact     (1.4 %)   Less: Currency impact     (1.3 %)
Revenue growth at constant currency     38.2 %   Revenue growth at constant currency     34.6 %
             
             
We evaluate growth in our operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our growth, consistent with how we evaluate our performance, as this statistic removes the translation impact of exchange rate fluctuations, which is non-operational. Constant currency revenue results are calculated by translating prior year revenue in local currency using the current year's currency conversion rate. This non-GAAP measure has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. Our use of this term may vary from the use of similarly-titled measures by other issuers due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.
Contact:

Joseph P. Boutross-LKQ Corporation
Director, Investor Relations
(312) 621-2793
jpboutross@lkqcorp.com

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