Market Overview

LKQ Corporation Announces Results for Fourth Quarter and Full Year 2017

Share:
  • Annual revenue growth of 13.4% to $9.74 billion; fourth quarter growth of 14.9%
  • Annual organic revenue growth for parts and services of 4.1%; fourth quarter organic growth of 4.8%
  • Tax reform net benefit of $22 million recognized in the fourth quarter
  • Annual diluted EPS from continuing operations attributable to LKQ stockholders of $1.74; adjusted diluted EPS of $1.88
  • Fourth quarter 2017 diluted EPS from continuing operations attributable to LKQ stockholders of $0.41; adjusted diluted EPS of $0.41
  • 2018 annual guidance provided

CHICAGO, Feb. 22, 2018 (GLOBE NEWSWIRE) --  LKQ Corporation (NASDAQ:LKQ) today announced results for its fourth quarter and full year ended December 31, 2017. For the fourth quarter of 2017, revenue was $2.47 billion compared with $2.15 billion for the fourth quarter of 2016, an increase of 14.9%. For the fourth quarter, parts and services organic revenue growth was 4.8% and acquisition revenue growth was 6.1%, while the impact of exchange rates was 3.3%, for total parts and services revenue growth of 14.3%.

Net income from continuing operations attributable to LKQ stockholders for the fourth quarter of 2017 was $126 million, an increase of 31.2% as compared to $96 million for the same period of 2016. On an adjusted basis, net income from continuing operations attributable to LKQ stockholders was $126 million, an increase of 17.0% as compared to the $108 million for the same period of 2016. Diluted earnings per share from continuing operations attributable to LKQ stockholders for the fourth quarter of 2017 was $0.41, an increase of 32.3% as compared to the $0.31 for the same period of 2016. On an adjusted basis, diluted earnings per share from continuing operations attributable to LKQ stockholders for the fourth quarter of 2017 was $0.41, an increase of 17.1% as compared to the $0.35 for the same period of 2016. Dominick Zarcone, President and Chief Executive Officer of LKQ Corporation, stated, "I am particularly pleased with the 5.0% organic revenue growth for parts and services achieved by our North America segment during the fourth quarter."

The Tax Cuts and Jobs Act, enacted in December 2017, made significant changes to federal income tax laws, including lowering the U.S. corporate income tax rate effective January 1, 2018. In the fourth quarter of 2017, the Company recorded a net benefit of $22 million to its income tax provision related to the net impact of revaluing deferred tax balances at the new rate and recording an estimated provision for the repatriation tax. These tax impacts have been excluded from the measurement of adjusted diluted earnings per share.

Full Year 2017 Reported Results

For the full year of 2017, revenue was $9.74 billion, an increase of 13.4% from $8.58 billion for 2016. For the full year of 2017, parts and services organic revenue growth was 4.1%, acquisition revenue growth was 9.1% and total parts and services revenue growth was 13.1%. On a per day basis, parts and services organic revenue growth was 4.5%. Diluted earnings per share from continuing operations attributable to LKQ stockholders for the full year 2017 was $1.74, an increase of 18.4% as compared to the $1.47 for the full year 2016. On an adjusted basis, diluted earnings per share from continuing operations attributable to LKQ stockholders for the full year 2017 was $1.88, an increase of 11.2% as compared to the $1.69 for the full year 2016.

Mr. Zarcone commented, "Our 2017 results reflect the underlying strength of our business and our ability to grow, both organically and through acquisitions, despite headwinds we faced earlier in the year. Additionally, during 2017 our North America and Specialty segments reported their highest annual EBITDA margins in the past five years. I believe we entered 2018 with strong operating momentum, a clear strategy across all of our segments, and an industry leading team of over 43,000 employees dedicated to delivering on our mission."

Corporate Development

On November 1, 2017, the Company acquired the aftermarket business of Warn Industries, Inc., a leading designer, manufacturer and marketer of high performance vehicle equipment and accessories.

On December 11, 2017, the Company announced that it had signed a definitive agreement to acquire Stahlgruber GmbH ("Stahlgruber") for an enterprise value of approximately €1.5 billion. Headquartered in Germany, Stahlgruber is a leading European wholesale distributor of aftermarket spare parts for passenger cars, tools, capital equipment and accessories with operations in Germany, Austria, Czech Republic, Italy, Slovenia, and Croatia with further sales to Switzerland. The Stahlgruber transaction is expected to be completed in the first half of 2018 and is subject to regulatory approvals.

In addition to the Warn Industries and pending Stahlgruber acquisitions, during the fourth quarter of 2017 LKQ acquired four businesses, including an aftermarket parts distributor in Bosnia and Herzegovina, an automotive glass distributor in Kansas, an aftermarket parts distributor in the Netherlands, and an automotive glass distributor in New Jersey. Also, in the fourth quarter, LKQ's European operations opened six new branches in Western Europe and nine new branches in Eastern Europe.

Mr. Zarcone commented, "Clearly, 2017 was another very active year for our development team resulting in the completion of 26 acquisitions, which expanded our geographic footprint, broadened the depth of our product offerings, and extended our leadership position in each of our operating segments. We look forward to closing the Stahlgruber acquisition in the near term so we can get to work integrating that business into our European operations."

Other Events

On December 1, 2017, the Company amended its credit facility to (i) extend the maturity date by approximately two years to January 29, 2023, (ii) increase the total availability under the revolving credit facility's multicurrency component from $2.45 billion to $2.75 billion, (iii) increase the permitted net leverage ratio thresholds, including a temporary step-up in the allowable net leverage ratio in the case of permitted acquisitions, (iv) modify the applicable margins and fees in the pricing grid, (v) increase the ability for the Company and its subsidiaries to incur additional indebtedness, and (vi) make other immaterial or clarifying modifications and amendments to the credit agreement.

Balance Sheet and Liquidity

In 2017, cash flows from operations totaled $519 million, we made $179 million of capital expenditures, and we invested $513 million for acquisitions.  As of December 31, 2017, the balance sheet reflected cash and cash equivalents of $280 million and outstanding debt of $3.4 billion. The unused capacity under the Company's credit facilities at December 31, 2017 was approximately $1.4 billion.

Company Outlook

  2018 Guidance
Organic revenue growth for parts & services 4.0% to 6.0%
Net income from continuing operations attributable to LKQ stockholders $646 million to $676 million
Adjusted net income from continuing operations attributable to LKQ stockholders* $720 million to $750 million
Diluted EPS from continuing operations attributable to LKQ stockholders $2.07 to $2.16
Adjusted diluted EPS from continuing operations attributable to LKQ stockholders * $2.30 to $2.40
Cash flows from operations $650 million to $700 million
Capital expenditures $250 million to $280 million

*Non-GAAP measures. See the table accompanying this release that reconciles the forecasted U.S. GAAP measures to the forecasted adjusted measures, which are non-GAAP.

Varun Laroyia, Executive Vice President and Chief Financial Officer, commented, "We expect the U.S. tax reform to have a favorable impact on our 2018 results. With the lower U.S. corporate tax rate, we estimate that our global effective tax rate will be approximately 26% in 2018. We intend to invest a portion of the U.S. based tax savings into programs that benefit our domestic employees."

Our guidance for 2018 is based on current conditions and does not include any results for the pending Stahlgruber acquisition. The guidance is based on current scrap prices and exchange rates. Changes in these figures may impact our ability to achieve the guidance. Adjusted figures exclude (to the extent applicable) the impact of restructuring and acquisition related expenses; amortization expense related to acquired intangibles; excess tax benefits and deficiencies from stock-based payments; adjustments to the estimated tax reform provisions booked in 2017; losses on debt extinguishment; and gains and losses related to acquisitions or divestitures (including changes in the fair value of contingent consideration liabilities).

Non-GAAP Financial Measures

This release contains and management's presentation on the conference call will refer to non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Included with this release are reconciliations of each non-GAAP financial measure with the most directly comparable financial measure calculated in accordance with GAAP.

Conference Call Details

LKQ will host a conference call and webcast on February 22, 2018 at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) with members of senior management to discuss the Company's results. To access the investor conference call, please dial (844) 579-6824. International access to the call may be obtained by dialing (763) 488-9145. The investor conference call will require you to enter conference ID: 6848459#.

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 (800) 585-8367 or (416) 621-4642 for international calls. The telephone replay will require you to enter conference ID: 6848459#. An online replay of the audio webcast will be available on the Company's website. Both formats of replay will be available through March 9, 2018. 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 has operations in North America, Europe 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

Statements and information in this press release that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are made pursuant to the "safe harbor" provisions of such Act.

Forward-looking statements include, but are not limited to, statements regarding our outlook, guidance, expectations, beliefs, hopes, intentions and strategies. These statements are subject to a number of risks, uncertainties, assumptions and other factors including those identified below.  All forward-looking statements are based on information available to us at the time the statements are made. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

You should not place undue reliance on our forward-looking statements. Actual events or results may differ materially from those expressed or implied in the forward-looking statements. The risks, uncertainties, assumptions and other factors that could cause actual results to differ from the results predicted or implied by our forward-looking statements include the factors set forth below, and other factors discussed in our filings with the SEC, including those disclosed under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2016 and in our subsequent Quarterly Reports on Form 10-Q, as well as our future filings, including our Annual Report on Form 10-K for the year ended December 31, 2017. These reports are available on our investor relations website at lkqcorp.com and on the SEC website at sec.gov.

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 (including the potential competitive advantage of OEMs with "connected car" technology);
  • fluctuations in the pricing of new 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;
  • the increase of accident avoidance systems being installed in vehicles;
  • the potential loss of sales of certain mechanical parts due to the rise of electric vehicle sales;
  • fluctuations in the prices of fuel, scrap metal and other commodities;
  • changes in 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 vehicles or 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;
  • costs of complying with laws relating to the security of personal information;
  • 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;
  • potential losses of our right to operate at key locations if we are not able to negotiate lease renewals;
  • 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 arrangements; and
  • other risks that are described in our Form 10-K filed February 27, 2017 and in other reports filed by us from time to time with the Securities and Exchange Commission.


Contact:
Joseph P. Boutross- Vice President, Investor Relations, LKQ Corporation
(312) 621-2793
jpboutross@lkqcorp.com

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Consolidated
Statements of Income, with Supplementary Data
( In thousands, except per share data )
                           
                           
        Three Months Ended December 31,
                           
          2017       2016        
            % of       % of      
            Revenue (1)       Revenue (1)   $ Change % Change
                           
  Revenue   $   2,469,855     100.0 %   $   2,150,406     100.0 %   $   319,449   14.9%
                           
  Cost of goods sold       1,522,210     61.6 %       1,320,400     61.4 %       201,810   15.3%
                           
     Gross margin
      947,645     38.4 %       830,006     38.6 %       117,639   14.2%
                           
  Facility and warehouse expenses       214,158     8.7 %       172,691     8.0 %       41,467   24.0%
                           
  Distribution expenses       201,454     8.2 %       174,578     8.1 %       26,876   15.4%
                           
  Selling, general and administrative expenses       294,410     11.9 %       259,644     12.1 %       34,766   13.4%
                           
  Restructuring and acquisition related expenses       9,301     0.4 %       6,948     0.3 %       2,353   33.9%
                           
  Depreciation and amortization       60,368     2.4 %       54,265     2.5 %       6,103   11.2%
                           
     Operating income
      167,954     6.8 %       161,880     7.5 %       6,074   3.8%
                           
  Other expense (income):                      
       Interest expense
      27,144     1.1 %       23,856     1.1 %       3,288   13.8%
       Loss on debt extinguishment
      456     0.0 %       -      0.0 %       456   n/m
       Gains on bargain purchases
      120     0.0 %       (8,207 )   (0.4 %)       8,327   n/m
       Interest income and other (income) expense, net
      (9,961 )   (0.4 %)       2,519     0.1 %       (12,480 ) n/m
                           
       Total other expense, net
      17,759     0.7 %       18,168     0.8 %       (409 ) (2.3%)
                           
       Income from continuing operations before provision for income taxes
      150,195     6.1 %       143,712     6.7 %       6,483   4.5%
                           
  Provision for income taxes        29,354     1.2 %       47,341     2.2 %       (17,987 ) (38.0%)
                           
  Equity in earnings (loss) of unconsolidated subsidiaries       2,029     0.1 %       (73 )   (0.0 %)       2,102   n/m
                           
       Income from continuing operations
      122,870     5.0 %       96,298     4.5 %       26,572   27.6%
                           
  Net loss from discontinued operations       (2,215 )   (0.1 %)       (9,967 )   (0.5 %)       7,752   77.8%
                           
       Net income
      120,655     4.9 %       86,331     4.0 %       34,324   39.8%
                           
  Less: net loss attributable to noncontrolling interest       (3,516 )   (0.1 %)       -      0.0 %       (3,516 ) n/m
                           
       Net income attributable to LKQ stockholders
  $   124,171     5.0 %   $   86,331     4.0 %   $   37,840   43.8%
                           
                           
  Basic earnings per share(2):                      
       Income from continuing operations
  $   0.40         $   0.31         $   0.09   29.0%
       Net loss from discontinued operations
      (0.01 )           (0.03 )           0.02   66.7%
        Net income
      0.39             0.28             0.11   39.3%
       Less: net loss attributable to noncontrolling interest
      (0.01 )           -              (0.01 ) n/m
         Net income attributable to LKQ stockholders
  $   0.40         $   0.28         $   0.12   42.9%
                           
  Diluted earnings per share(2):                      
       Income from continuing operations
  $   0.39         $   0.31         $   0.08   25.8%
       Net loss from discontinued operations
      (0.01 )           (0.03 )           0.02   66.7%
        Net income
      0.39             0.28             0.11   39.3%
       Less: net loss attributable to noncontrolling interest
      (0.01 )           -              (0.01 ) n/m
        Net income attributable to LKQ stockholders
  $   0.40         $   0.28         $   0.12   42.9%
                           
  Weighted average common shares outstanding:                      
       Basic
      309,070             307,514             1,556   0.5%
                           
       Diluted
      311,106             310,120             986   0.3%
                           
                           
  (1The sum of the individual percentage of revenue components may not equal the total due to rounding.
 
  (2The sum of the individual earnings per share amounts may not equal the total due to rounding.
 
                           
LKQ CORPORATION AND SUBSIDIARIES  
Unaudited Consolidated  
Statements of Income, with Supplementary Data  
( In thousands, except per share data )  
                             
                             
        Year Ended December 31,  
                             
          2017       2016          
            % of       % of        
            Revenue (1)       Revenue (1)   $ Change % Change  
                             
  Revenue   $   9,736,909     100.0 %   $   8,584,031     100.0 %   $   1,152,878   13.4%  
                             
  Cost of goods sold       5,937,286     61.0 %       5,232,328     61.0 %       704,958   13.5%  
                             
    Gross margin       3,799,623     39.0 %       3,351,703     39.0 %       447,920   13.4%  
                             
  Facility and warehouse expenses       797,388     8.2 %       688,918     8.0 %       108,470   15.7%  
                             
  Distribution expenses       784,485     8.1 %       683,812     8.0 %       100,673   14.7%  
                             
  Selling, general and administrative expenses       1,131,214     11.6 %       986,380     11.5 %       144,834   14.7%  
                             
  Restructuring and acquisition related expenses       19,672     0.2 %       37,762     0.4 %       (18,090 ) (47.9%)  
                             
  Depreciation and amortization       219,546     2.3 %       191,433     2.2 %       28,113   14.7%  
                             
    Operating income       847,318     8.7 %       763,398     8.9 %       83,920   11.0%  
                             
  Other expense (income):                        
    Interest expense       101,640     1.0 %       88,263     1.0 %       13,377   15.2%  
    Loss on debt extinguishment       456     0.0 %       26,650     0.3 %       (26,194 ) (98.3%)  
    Gains on foreign exchange contracts - acquisition related       -      0.0 %       (18,342 )   (0.2 %)       18,342   (100.0%)  
    Gains on bargain purchases       (3,870 )   (0.0 %)       (8,207 )   (0.1 %)       4,337   52.8%  
    Interest and other income, net       (17,535 )   (0.2 %)       (2,247 )   (0.0 %)       (15,288 ) n/m  
                             
    Total other expense, net       80,691     0.8 %       86,117     1.0 %       (5,426 ) (6.3%)  
                             
    Income from continuing operations before provision for income taxes       766,627     7.9 %       677,281     7.9 %       89,346   13.2%  
                             
  Provision for income taxes        235,560     2.4 %       220,566     2.6 %       14,994   6.8%  
                             
  Equity in earnings (loss) of unconsolidated subsidiaries       5,907     0.1 %       (592 )   (0.0 %)       6,499   n/m  
                             
    Income from continuing operations       536,974     5.5 %       456,123     5.3 %       80,851   17.7%  
                             
  Net (loss) income from discontinued operations       (6,746 )   (0.1 %)       7,852     0.1 %       (14,598 ) n/m  
                             
    Net income       530,228     5.4 %       463,975     5.4 %       66,253   14.3%  
                             
  Less: net loss attributable to noncontrolling interest       (3,516 )   (0.0 %)       -      0.0 %       (3,516 ) n/m  
                             
    Net income attributable to LKQ stockholders   $   533,744     5.5 %   $   463,975     5.4 %   $   69,769   15.0%  
                             
                             
  Basic earnings per share(2):                        
    Income from continuing operations   $   1.74         $   1.49         $   0.25   16.8%  
    Net (loss) income from discontinued operations       (0.02 )           0.03             (0.05 ) n/m  
      Net income       1.72             1.51             0.21   13.9%  
    Less: net loss attributable to noncontrolling interest       (0.01 )           -              (0.01 ) n/m  
      Net income attributable to LKQ stockholders   $   1.73         $   1.51         $   0.22   14.6%  
                             
  Diluted earnings per share(2):                        
    Income from continuing operations   $   1.73         $   1.47         $   0.26   17.7%  
    Net (loss) income from discontinued operations       (0.02 )           0.03             (0.05 ) n/m  
      Net income       1.71             1.50             0.21   14.0%  
    Less: net loss attributable to noncontrolling interest       (0.01 )           -              (0.01 ) n/m  
      Net income attributable to LKQ stockholders   $   1.72         $   1.50         $   0.22   14.7%  
                             
  Weighted average common shares outstanding:                        
    Basic       308,607             306,897             1,710   0.6%  
                             
    Diluted       310,649             309,784             865   0.3%  
                             
                             
  (1 ) The sum of the individual percentage of revenue components may not equal the total due to rounding.
 
  (2 ) The sum of the individual earnings per share amounts may not equal the total due to rounding.
 


LKQ CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
( In thousands, except share and per share data )
             
             
        December 31,   December 31,
          2017       2016  
    Assets        
             
Current assets:        
  Cash and cash equivalents   $   279,766     $   227,400  
  Receivables, net       1,027,106         860,549  
  Inventories       2,380,783         1,935,237  
  Prepaid expenses and other current assets       134,479         87,768  
  Assets of discontinued operations       -          456,640  
     Total current assets       3,822,134         3,567,594  
             
Property, plant and equipment, net       913,089         811,576  
Intangible assets:        
  Goodwill       3,536,511         3,054,769  
  Other intangibles, net       743,769         584,231  
Equity method investments       208,404         183,467  
Other assets       142,965         101,562  
             
     Total assets   $   9,366,872     $   8,303,199  
             
    Liabilities and Stockholders' Equity        
             
Current liabilities:        
  Accounts payable   $   788,613     $   633,773  
  Accrued expenses:        
   Accrued payroll-related liabilities       143,424         118,755  
   Other accrued expenses       218,600         209,101  
  Other current liabilities       45,727         37,943  
  Current portion of long-term obligations       126,360         66,109  
  Liabilities of discontinued operations       -          145,104  
             
     Total current liabilities       1,322,724         1,210,785  
             
Long-term obligations, excluding current portion       3,277,620         3,275,662  
Deferred income taxes       252,359         199,657  
Other noncurrent liabilities       307,516         174,146  
             
Commitments and contingencies        
             
Stockholders' equity:        
             
     Common stock, $0.01 par value, 1,000,000,000        
     shares authorized, 309,126,386 and 307,544,759        
     shares issued and outstanding at December 31, 2017        
     and December 31, 2016, respectively       3,091         3,075  
  Additional paid-in capital         1,141,451         1,116,690  
  Retained earnings         3,124,103         2,590,359  
  Accumulated other comprehensive loss       (70,476 )       (267,175 )
    Total Company stockholders' equity       4,198,169         3,442,949  
  Noncontrolling interest       8,484         -   
             
     Total stockholders' equity       4,206,653         3,442,949  
             
     Total liabilities and stockholders' equity   $   9,366,872     $   8,303,199  
             
             


  LKQ CORPORATION AND SUBSIDIARIES  
  Unaudited Consolidated Statements of Cash Flows  
( In thousands )  
             
          Year Ended  
          December 31,  
            2017     2016  
                 
  CASH FLOWS FROM OPERATING ACTIVITIES:          
    Net income   $   530,228   $   463,975  
    Adjustments to reconcile net income to net cash          
    provided by operating activities:          
      Depreciation and amortization       230,203       206,086  
      Stock-based compensation expense       22,832       22,472  
      Loss on debt extinguishment       456       26,650  
      Loss on sale of business       10,796       -   
      Impairment on net assets of discontinued operations       -        26,677  
      Gains on foreign exchange contracts - acquisition related       -        (18,342)  
      Gains on bargain purchases       (3,870)       (8,207)  
      Deferred income taxes       (46,537)       (16,162)  
      Other       1,301       19,550  
      Changes in operating assets and liabilities, net of          
        effects from acquisitions and dispositions:          
        Receivables, net       (55,979)       (50,801)  
        Inventories       (203,857)       (64,114)  
        Prepaid income taxes/income taxes payable       8,376       14,944  
        Accounts payable       45,136       18,577  
        Other operating assets and liabilities       (20,185)       (6,291)  
                 
        Net cash provided by operating activities       518,900       635,014  
                 
  CASH FLOWS FROM INVESTING ACTIVITIES:          
    Purchases of property, plant and equipment       (179,090)       (207,074)  
    Acquisitions, net of cash acquired       (513,088)       (1,349,339)  
    Proceeds from disposal of business/investment       301,297       10,304  
    Investments in unconsolidated subsidiaries       (7,664)       (185,671)  
    Proceeds from foreign exchange contracts       -        18,342  
    Other investing activities, net       13,950       3,510  
                 
      Net cash used in investing activities       (384,595)       (1,709,928)  
                 
  CASH FLOWS FROM FINANCING ACTIVITIES:          
    Proceeds from exercise of stock options       7,470       7,963  
    Taxes paid related to net share settlements of stock-based        
      compensation awards       (5,525)       (4,438)  
    Debt issuance costs       (4,267)       (16,554)  
    Proceeds from issuance of Euro Notes (2024)       -        563,450  
    Borrowings under revolving credit facilities       839,171       2,636,596  
    Repayments under revolving credit facilities       (946,477)       (1,748,664)  
    Borrowing under term loans       -        582,115  
    Repayments under term loans       (27,884)       (255,792)  
    Borrowings under receivables securitization facility       11,245       106,400  
    Repayments under receivables securitization facility       (11,245)       (69,400)  
    Borrowings (repayments) of other debt, net       19,706       (31,156)  
    Payments of Rhiag debt and related payments       -        (543,347)  
    Payments of other obligations       (2,077)       (1,436)  
    Other financing activities, net       7,316       -   
                 
      Net cash (used in) provided by financing activities       (112,567)       1,225,737  
                 
  Effect of exchange rate changes on cash and cash equivalents     23,512       (3,704)  
                 
  Net increase in cash and cash equivalents       45,250       147,119  
  Cash and cash equivalents of continuing operations, beginning        
    of period       227,400       87,397  
    Add: Cash and cash equivalents of discontinued operations,        
      beginning of period       7,116       -   
  Cash and cash equivalents of continuing and discontinued          
    operations, beginning of period       234,516       87,397  
  Cash and cash equivalents of continuing and discontinued          
    operations, end of period       279,766       234,516  
    Less: Cash and cash equivalents of discontinued operations,        
      end of period       -        (7,116)  
                 
  Cash and cash equivalents, end of period   $   279,766   $   227,400  
                 
                 
                 
                 
The following unaudited tables compare certain third party revenue categories:        
                   
      Three Months Ended        
      December 31,        
                   
        2017       2016     $ Change   % Change
      (In thousands)        
Included in Unaudited Consolidated              
Statements of Income of LKQ Corporation              
                   
North America   $   1,071,530     $   1,003,063     $   68,467     6.8%  
Europe         969,102         777,843         191,259     24.6%  
Specialty       295,421         263,476         31,945     12.1%  
Parts and services     2,336,053         2,044,382         291,671     14.3%  
Other         133,802         106,024         27,778     26.2%  
Total     $   2,469,855     $   2,150,406     $   319,449     14.9%  
                   
                   
                   
Revenue changes by category for the three months ended December 31, 2017 vs. 2016:    
                   
               
      Revenue Change Attributable to:    
      Organic   Acquisition   Foreign Exchange   Total Change (1)
                   
North America     5.0%       1.5%       0.3%     6.8%  
Europe       5.0%       11.3%       8.2%     24.6%  
Specialty     3.6%       8.1%       0.5%     12.1%  
Parts and services   4.8%       6.1%       3.3%     14.3%  
Other       24.9%       1.2%       0.2%     26.2%  
Total       5.8%       5.8%       3.2%     14.9%  
                   
                   
      Year Ended        
      December 31,        
                   
        2017       2016     $ Change   % Change
      (In thousands)        
Included in Unaudited Consolidated              
Statements of Income of LKQ Corporation              
                   
North America   $   4,278,531     $   4,009,129     $   269,402     6.7%  
Europe         3,628,906         2,915,841         713,065     24.5%  
Specialty       1,301,197         1,219,675         81,522     6.7%  
Parts and services     9,208,634         8,144,645         1,063,989     13.1%  
Other         528,275         439,386         88,889     20.2%  
Total     $   9,736,909     $   8,584,031     $   1,152,878     13.4%  
                   
Revenue changes by category for the year ended December 31, 2017 vs. 2016:        
                   
               
      Revenue Change Attributable to:    
      Organic   Acquisition   Foreign Exchange   Total Change (1)
                   
North America     3.0%       3.6%       0.1%     6.7%  
Europe       5.3%       19.8%       (0.6%)     24.5%  
Specialty     4.7%       1.9%       0.1%     6.7%  
Parts and services   4.1%       9.1%       (0.1%)     13.1%  
Other       19.6%       0.7%       0.0%     20.2%  
Total       4.9%       8.7%       (0.1%)     13.4%  
                   
(1) The sum of the individual revenue change components may not equal the total percentage change due to rounding.
   
                   
                   


 

The following unaudited table reconciles consolidated revenue growth for parts & services to constant currency revenue growth for the same measure:
                   
    Three Months Ended   Year Ended  
    December 31, 2017   December 31, 2017  
    Consolidated   Europe   Consolidated   Europe  
Parts & Services                  
Revenue growth as reported   14.3%     24.6%     13.1%     24.5%    
Less: Currency impact   3.3%     8.2%     (0.1%)     (0.6%)    
Revenue growth at constant currency   11.0%     16.4%     13.2%     25.1%    
                   
                   
We have presented the growth of our revenue on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP financial measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency revenue 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 are outside of our control and do not reflect our operational performance. 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 financial 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. In addition, not all companies that report revenue growth on a constant currency basis calculate such measure in the same manner as we do and, accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies.


The following unaudited table compares revenue and Segment EBITDA by reportable segment:          
                             
                             
      Three Months Ended   Year Ended  
      December 31,   December 31,  
                             
        2017       2016       2017       2016    
(In thousands)       % of Revenue     % of Revenue     % of Revenue     % of Revenue  
                             
Revenue                            
North America     $   1,202,954       $   1,107,778       $   4,799,651       $   4,444,625      
Europe         971,641           779,284           3,636,811           2,920,470      
Specialty         296,518           264,510           1,305,516           1,223,723      
Eliminations         (1,258 )         (1,166 )         (5,069 )         (4,787 )    
                             
  Total revenue     $   2,469,855       $   2,150,406       $   9,736,909       $   8,584,031      
                             
Segment EBITDA                            
North America     $   152,781   12.7%     $   138,441   12.5%     $   655,275   13.7%     $   589,945   13.3%    
Europe         77,619   8.0%         63,542   8.2%         319,156   8.8%         283,608   9.7%    
Specialty         23,026   7.8%         20,344   7.7%         142,159   10.9%         131,427   10.7%    
                             
  Total Segment EBITDA     $   253,426   10.3%     $   222,327   10.3%     $   1,116,590   11.5%     $   1,004,980   11.7%    
                             
                             
                             
                             
                             
We have presented Segment EBITDA solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our segment profit and loss. We calculate Segment EBITDA 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 noncontrolling interest, discontinued operations, depreciation, amortization, interest (which includes loss on debt extinguishment) and income tax expense. Our chief operating decision maker, who is our Chief Executive Officer, uses Segment EBITDA as the key measure of our segment profit or loss. We use Segment EBITDA 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.  
 
 
 
 
 


The following unaudited table reconciles Net Income to EBITDA and Segment EBITDA:              
                       
        Three Months Ended   Year Ended  
        December 31,   December 31,  
                       
          2017       2016       2017       2016    
(In thousands)        
                       
Net income     $   120,655     $   86,331     $   530,228     $   463,975    
  Less: net loss attributable to noncontrolling interest         (3,516 )       -          (3,516 )       -     
  Net income attributable to LKQ stockholders         124,171         86,331         533,744         463,975    
                       
 Subtract:                    
  Net (loss) income from discontinued operations         (2,215 )       (9,967 )       (6,746 )       7,852    
                       
Net income from continuing operations attributable to LKQ stockholders       126,386         96,298         540,490         456,123    
                       
 Add:                    
  Depreciation and amortization         60,368         54,265         219,546         191,433    
  Depreciation and amortization - cost of goods sold         3,327         1,899         10,657         6,901    
  Interest expense, net         26,814         23,680         100,620         87,682    
  Loss on debt extinguishment (1)         456         -          456         26,650    
  Provision for income taxes          29,354         47,341         235,560         220,566    
                       
Earnings before interest, taxes, depreciation                    
  and amortization (EBITDA)         246,705         223,483         1,107,329         989,355    
                       
 Subtract:                    
  Equity in earnings (loss) of unconsolidated subsidiaries         2,029         (73 )       5,907         (592 )  
  Gains on foreign exchange contracts - acquisition related         -          -          -          18,342    
  Gains on bargain purchases         (120 )       8,207         3,870         8,207    
 Add:                    
  Restructuring and acquisition related expenses         9,301         6,948         19,672         37,762    
  Inventory step-up adjustment – acquisition related         3,584         -          3,584         3,614    
  Change in fair value of contingent consideration liabilities         (4,255 )       30         (4,218 )       206    
                       
Segment EBITDA     $   253,426     $   222,327     $   1,116,590     $   1,004,980    
                       
EBITDA as a percentage of revenue       10.0 %     10.4 %     11.4 %     11.5 %  
                       
Segment EBITDA as a percentage of revenue       10.3 %     10.3 %     11.5 %     11.7 %  
                       
                       
                       
(1 ) Loss on debt extinguishment is considered a component of interest in calculating EBITDA.   
 
       
  We have presented EBITDA solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our operating performance and the value of our business. We calculate EBITDA as net income excluding noncontrolling interest, discontinued operations, depreciation, amortization, interest (which includes loss on debt extinguishment) and income tax expense. EBITDA provides insight into our profitability trends and allows management and investors to analyze our operating results with and without the impact of noncontrolling interest, discontinued operations, 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.

We have presented Segment EBITDA solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our segment profit and loss and underlying trends in our ongoing operations. We calculate Segment EBITDA 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. Our chief operating decision maker, who is our Chief Executive Officer, uses Segment EBITDA as the key measure of our segment profit or loss. We use Segment EBITDA to compare profitability among our segments and evaluate business strategies. 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.

EBITDA and Segment EBITDA should not be construed as alternatives 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 or Segment EBITDA information calculate EBITDA or Segment EBITDA in the same manner as we do and, accordingly, our calculations are not necessarily comparable to similarly named measures of other companies and may not be appropriate measures for performance relative to other companies.   
 


 

The following unaudited table reconciles Net Income and Diluted Earnings per Share to Adjusted Net Income from Continuing Operations Attributable to LKQ Stockholders and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders, respectively:  
 
 
                     
      Three Months Ended   Year Ended  
      December 31,   December 31,  
                     
        2017       2016       2017       2016    
(In thousands, except per share data)                    
                     
Net income     $   120,655     $   86,331     $   530,228     $   463,975    
  Less: net loss attributable to noncontrolling interest         (3,516 )       -          (3,516 )       -     
Net income attributable to LKQ stockholders         124,171         86,331         533,744         463,975    
                     
Subtract:                    
                     
Net (loss) income from discontinued operations         (2,215 )       (9,967 )       (6,746 )       7,852    
                     
Net income from continuing operations attributable to LKQ stockholders         126,386         96,298         540,490         456,123    
                     
Adjustments - continuing operations attributable to LKQ stockholders:                    
                     
Amortization of acquired intangibles         26,225         23,557         97,388         81,748    
Restructuring and acquisition related expenses         9,301         6,948         19,672         37,762    
Loss on debt extinguishment         456         -          456         26,650    
Inventory step-up adjustment – acquisition related         3,584         -          3,584         3,614    
Change in fair value of contingent consideration liabilities         (4,255 )       30         (4,218 )       206    
Gains on foreign exchange contracts - acquisition related         -          -          -          (18,342 )  
Gains on bargain purchases         120         (8,207 )       (3,870 )       (8,207 )  
U.S. tax law change 2017         (22,188 )       -          (22,188 )       -     
Excess tax benefit from stock-based payments         (942 )       30         (8,000 )       (11,441 )  
Tax effect of adjustments         (12,283 )       (10,574 )       (40,616 )       (45,646 )  
                     
Adjusted net income from continuing operations attributable to LKQ stockholders     $   126,404     $   108,082     $   582,698     $   522,467    
                     
                     
Weighted average diluted common shares outstanding         311,106         310,120         310,649         309,784    
                     
Diluted earnings per share from continuing operations attributable to LKQ stockholders:                  
                     
Reported     $   0.41     $   0.31     $   1.74     $   1.47    
                     
Adjusted     $   0.41     $   0.35     $   1.88     $   1.69    
                     
                     
We have presented Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders as we believe these measures are useful for evaluating the core operating performance of our continuing business across reporting periods and in analyzing the company's historical operating results. We define Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders as Net Income and Diluted Earnings per Share adjusted to eliminate the impact of noncontrolling interest, discontinued operations, restructuring and acquisition related expenses, loss on debt extinguishment, amortization expense related to acquired intangibles, the change in fair value of contingent consideration liabilities, other acquisition-related gains and losses, excess tax benefits and deficiencies from stock-based payments, the 2017 U.S. tax law change and any tax effect of these adjustments. The tax effect of these adjustments is calculated using the effective tax rate for the applicable period or for certain discrete items the specific tax expense or benefit for the adjustment. These financial 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. Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders should not be construed as alternatives to Net Income or Diluted Earnings per Share as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companies that report Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders calculate such measures in the same manner as we do and, accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies.  
 
 
 
 
 
 
 


The following unaudited table reconciles Forecasted Net Income and Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders to Forecasted Adjusted Net Income from Continuing Operations Attributable to LKQ Stockholders and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders, respectively:  
 
 
               
      Forecasted    
      Fiscal Year 2018    
               
      Minimum
Guidance
  Maximum
Guidance
   
(In millions, except per share data)              
               
Net income from continuing operations attributable to LKQ stockholders     $   646     $   676      
               
Adjustments:              
               
Amortization of acquired intangibles         100         100      
Tax effect of adjustments         (26 )       (26 )    
               
Adjusted net income from continuing operations attributable to LKQ stockholders     $   720     $   750      
               
               
Weighted average diluted common shares outstanding         312         312      
               
Diluted earnings per share from continuing operations attributable to LKQ stockholders:        
               
  U.S. GAAP     $   2.07     $   2.16      
               
  Non-GAAP (Adjusted)     $   2.30     $   2.40      
               
               
We have presented forecasted Adjusted Net Income and forecasted Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders in our financial guidance. Refer to the discussion of Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders for details on the calculation of these non-GAAP financial measures. In the calculation of forecasted Adjusted Net Income and forecasted Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders, we included estimates of income from continuing operations attributable to LKQ stockholders, amortization of acquired intangibles for the full fiscal year 2018 and the related tax effect; we did not estimate amounts for any other components of the calculation for the year ending December 31, 2018.    
   
   
   
   
   

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