LKQ Corporation Announces Third Quarter 2016 Financial Results

  • Revenue growth of 30.3% to $2.4 billion
  • Organic revenue growth for parts and services of 3.7%
  • Net income growth of 21.1%; adjusted net income growth of 26.8%
  • Diluted EPS of $0.40; adjusted diluted EPS of $0.45
  • Annual guidance updated

CHICAGO, Oct. 27, 2016 (GLOBE NEWSWIRE) -- LKQ Corporation (Nasdaq:LKQ) today reported revenue for the third quarter of 2016 of $2.39 billion, an increase of 30.3% as compared to $1.83 billion in the third quarter of 2015. Net income for the third quarter of 2016 was $122.7 million, an increase of 21.1% as compared to $101.3 million for the same period of 2015. On an adjusted basis, net income was $139.3 million, an increase of 26.8% as compared to the $109.9 million for the same period of 2015. Diluted earnings per share for the third quarter of 2016 was $0.40, an increase of 21.2% as compared to $0.33 for the same period of 2015. On an adjusted basis, diluted earnings per share was $0.45 in the third quarter of 2016 reflecting a 25.0% increase over $0.36 for the same period of 2015.

“The results we achieved in the third quarter reflect the benefits of our increasingly diverse and global operations. We had impressive revenue growth in parts and services of 33.2% and growth in adjusted diluted earnings per share of 25% in the third quarter. We also continued to realize the benefits associated with the productivity initiatives implemented this year,” stated Robert Wagman, President and Chief Executive Officer of LKQ Corporation. “While there was softness across parts of the global auto industry during the quarter, the Company delivered positive organic revenue growth for parts and services of 3.7%.”

On a nine month year-to-date basis, revenue was $6.76 billion, an increase of 24.2% from $5.44 billion for the comparable period of 2015. Parts and services organic revenue growth for the first nine months of 2016 was 5.1%. Net income for the first nine months of 2016 was $377.6 million, as compared to $328.2 million for the same period of 2015. Diluted earnings per share was $1.22 for the first nine months of 2016, reflecting a 14.0% increase as compared to $1.07 for the comparable period of 2015. On an adjusted basis, diluted earnings per share was $1.41 in the first nine months of 2016 reflecting a 22.6% increase over $1.15 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.

Balance Sheet and Liquidity

Cash flow from operations totaled $524 million on a nine month year-to-date basis, of which approximately $153 million was invested in capital expenditures. As of September 30, 2016, the balance sheet reflected cash and equivalents of $272 million and outstanding debt of $3.3 billion. Total availability under the Company’s credit facility at September 30, 2016 was approximately $1.2 billion.

Other Events

During the third quarter of 2016, LKQ acquired a distributor of aftermarket automotive products in the Netherlands, a distributor of recreational vehicle products and accessories in the United Kingdom, a distributor of aftermarket automotive products in Ireland, and a heavy-duty truck salvage business in Minnesota. Also, in the third quarter, LKQ’s European operations opened three new branches in the United Kingdom and eight new branches in Eastern Europe.

On October 4, 2016, the Company announced that its United Kingdom subsidiary, Euro Car Parts, acquired substantially all the business assets of Andrew Page Limited, a distributor of automotive parts in the United Kingdom. As part of the transaction, Euro Car Parts acquired 102 Andrew Page branch locations.

Company Outlook

The Company updated its guidance for 2016.

 Updated GuidancePrior Guidance
Organic revenue growth (parts & services)4.5% to 5.0%5.5% to 7.0%
Adjusted net income*$551 million to $569 million$555 million to $580 million
Adjusted diluted EPS*$1.78 to $1.84$1.79 to $1.87
Cash flow from operations$575 million to $600 million$585 million to $635 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 October 27, 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); income tax effects related to excess tax benefits; 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.

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 (SEC). Included with this release are reconciliations of each non-GAAP financial measure and the most directly comparable financial measure calculated in accordance with GAAP.

Conference Call Details

On October 27, 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) 201-0168. International access to the call may be obtained by dialing (647) 788-4901.

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 (855) 859-2056 or (404) 537-3406 for international calls. The telephone replay will require you to enter conference ID: 81369558#. An online replay of the audio webcast will be available on the Company's website. Both formats of replay will be available through November 10, 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

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, 2015 and in our subsequent Quarterly Reports on Form 10-Q. 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;
  • 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 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;
  • 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 SEC.


LKQ CORPORATION AND SUBSIDIARIES  
Unaudited Condensed Consolidated Statements of Income  
( In thousands, except per share data )  
             
             
    Three Months Ended Nine Months Ended  
    September 30, September 30,  
             
     2016   2015   2016   2015   
             
 Revenue $2,386,830  $1,831,732  $6,758,999  $5,443,714   
             
 Cost of goods sold  1,503,418   1,118,953   4,193,203   3,307,512   
             
  Gross margin  883,412   712,779   2,565,796   2,136,202   
             
 Facility and warehouse expenses  183,048   143,918   519,323   412,954   
             
 Distribution expenses  172,566   158,768   509,240   450,521   
             
 Selling, general and administrative expenses  263,372   207,887   735,843   616,924   
             
 Restructuring and acquisition related expenses  8,412   4,578   32,303   12,729   
             
 Depreciation and amortization  53,016   30,883   137,233   90,118   
             
  Operating income  202,998   166,745   631,854   552,956   
             
 Other expense (income):          
  Interest expense, net  27,059   14,722   68,032   44,250   
  Loss on debt extinguishment  -   -   26,650   -   
  Gains on foreign exchange contracts - acquisition related  -   -   (18,342)  -   
  Other income, net  (3,279)  (2,928)  (4,829)  (912)  
             
  Total other expense, net  23,780   11,794   71,511   43,338   
             
  Income before provision for income taxes  179,218   154,951   560,343   509,618   
             
 Provision for income taxes  56,797   52,475   182,751   177,255   
             
 Equity in earnings of unconsolidated subsidiaries  267   (1,130)  52   (4,200)  
             
  Net income $122,688  $101,346  $377,644  $328,163   
             
             
 Earnings per share:          
  Basic $0.40  $0.33  $1.23  $1.08   
             
  Diluted $0.40  $0.33  $1.22  $1.07   
             
             
 Weighted average common shares outstanding:          
  Basic  307,190   305,059   306,690   304,453   
             
  Diluted  310,036   307,728   309,671   307,326   
             


LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
( In thousands, except share and per share data )
       
       
    September 30, December 31,
     2016   2015 
  Assets    
       
Current Assets:    
 Cash and equivalents $271,851  $87,397 
 Receivables, net  959,321   590,160 
 Inventories, net  1,912,568   1,556,552 
 Prepaid expenses and other current assets  151,801   106,603 
  Total Current Assets  3,295,541   2,340,712 
       
Property, Plant and Equipment, net  1,023,707   696,567 
Intangible Assets:    
 Goodwill  3,117,150   2,319,246 
 Other intangibles, net  619,246   215,117 
Other Assets  148,308   76,195 
       
  Total Assets $8,203,952  $5,647,837 
       
  Liabilities and Stockholders' Equity    
       
Current Liabilities:    
 Accounts payable $682,719  $415,588 
 Accrued expenses:    
  Accrued payroll-related liabilities  106,544   86,527 
  Other accrued expenses  238,302   162,225 
 Other current liabilities  46,814   31,596 
 Current portion of long-term obligations  74,829   56,034 
       
  Total Current Liabilities  1,149,208   751,970 
       
Long-Term Obligations, Excluding Current Portion  3,189,345   1,528,668 
Deferred Income Taxes  226,682   127,239 
Other Noncurrent Liabilities  211,440   125,278 
       
Commitments and Contingencies    
       
Stockholders' Equity:    
 Common stock, $0.01 par value, 1,000,000,000    
  shares authorized, 307,487,198 and 305,574,384    
  shares issued and outstanding at September 30, 2016    
  and December 31, 2015, respectively  3,074   3,055 
 Additional paid-in capital  1,110,841   1,090,713 
 Retained earnings  2,504,028   2,126,384 
 Accumulated other comprehensive loss  (190,666)  (105,470)
       
  Total Stockholders' Equity  3,427,277   3,114,682 
       
  Total Liabilities and Stockholders' Equity $8,203,952  $5,647,837 
       

 

 LKQ CORPORATION AND SUBSIDIARIES
 Unaudited Condensed Consolidated Statements of Cash Flows
( In thousands )
      
     Nine Months Ended
     September 30,
      2016   2015 
        
 CASH FLOWS FROM OPERATING ACTIVITIES:    
  Net income $377,644  $328,163 
  Adjustments to reconcile net income to net cash    
   provided by operating activities:    
   Depreciation and amortization  150,370   94,688 
   Stock-based compensation expense  17,062   16,291 
   Loss on debt extinguishment  26,650   - 
   Gains on foreign exchange contracts - acquisition related  (18,342)  - 
   Other  6,711   6,580 
   Changes in operating assets and liabilities, net of    - 
   effects from acquisitions:    - 
   Receivables, net  (46,376)  (6,304)
   Inventories, net  27,070   22,345 
   Prepaid income taxes/income taxes payable  4,134   39,639 
   Accounts payable  (12,412)  (11,139)
   Other operating assets and liabilities  (8,360)  14,732 
        
   Net cash provided by operating activities  524,151   504,995 
        
 CASH FLOWS FROM INVESTING ACTIVITIES:    
  Purchases of property, plant and equipment  (152,746)  (99,573)
  Acquisitions, net of cash acquired  (1,301,127)  (157,357)
  Other investing activities, net  29,183   3,174 
        
   Net cash used in investing activities  (1,424,690)  (253,756)
        
 CASH FLOWS FROM FINANCING ACTIVITIES:    
  Proceeds from exercise of stock options  7,525   7,534 
  Taxes paid related to net share settlements of stock-based   
  compensation awards  (4,440)  (7,423)
  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 1,081,698   (226,728)
  Debt issuance costs  (16,404)  - 
        
   Net cash provided by (used in) financing activities  1,088,482   (226,617)
        
 Effect of exchange rate changes on cash and equivalents  (3,489)  (2,141)
        
 Net increase in cash and equivalents  184,454   22,481 
        
 Cash and equivalents, beginning of period  87,397   114,605 
        
 Cash and equivalents, end of period $271,851  $137,086 
        


The following unaudited tables compare certain third party revenue categories:     
           
   Three Months Ended     
   September 30,     
           
    2016   2015  $ Change % Change 
   (In thousands)     
Included in Unaudited Condensed Consolidated        
Statements of Income of LKQ Corporation        
           
North America $935,959  $914,956  $21,003   2.3% 
Europe   769,332   510,279   259,053   50.8% 
Specialty  311,621   283,456   28,165   9.9% 
Glass   258,411   -   258,411   n/m  
Parts and services 2,275,323   1,708,691   566,632   33.2% 
Other   111,507   123,041   (11,534)  (9.4%) 
Total  $2,386,830  $1,831,732  $555,098   30.3% 
           
Revenue changes by category for the three months ended September 30, 2016 vs. 2015:   
           
         
   Revenue Change Attributable to:   
           
   Organic Acquisition Foreign Exchange Total Change (1) 
           
North America  2.1%  0.2%  0.0%  2.3% 
Europe   6.7%  54.6%  (10.6%)  50.8% 
Specialty  3.7%  6.2%  0.0%  9.9% 
Glass   n/m   n/m   n/m   n/m  
Parts and services 3.7%  32.6%  (3.2%)  33.2% 
Other   (10.1%)  0.8%  (0.2%)  (9.4%) 
Total   2.8%  30.5%  (3.0%)  30.3% 
           
           
   Nine Months Ended     
   September 30,     
           
    2016   2015  $ Change % Change 
   (In thousands)     
Included in Unaudited Condensed Consolidated        
Statements of Income of LKQ Corporation        
           
North America $2,884,169  $2,745,448  $138,721   5.1% 
Europe   2,137,998   1,505,106   632,892   42.0% 
Specialty  934,955   807,401   127,554   15.8% 
Glass   468,515   -   468,515   n/m  
Parts and services 6,425,637   5,057,955   1,367,682   27.0% 
Other   333,362   385,759   (52,397)  (13.6%) 
Total  $6,758,999  $5,443,714  $1,315,285   24.2% 
           
Revenue changes by category for the six months ended September 30, 2016 vs. 2015:    
           
         
   Revenue Change Attributable to:   
   Organic Acquisition Foreign Exchange Total Change (1) 
           
North America  3.3%  2.0%  (0.3%)  5.1% 
Europe   7.2%  41.1%  (6.3%)  42.0% 
Specialty  7.3%  8.9%  (0.4%)  15.8% 
Glass   n/m   n/m   n/m   n/m  
Parts and services 5.1%  24.0%  (2.1%)  27.0% 
Other   (17.2%)  3.8%  (0.2%)  (13.6%) 
Total   3.5%  22.6%  (2.0%)  24.2% 
           
(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 September 30, 
               
Operating Highlights  2016   2015     
      % of   % of    
      Revenue (1)   Revenue (1)
 Change% Change 
               
 Revenue $2,386,830   100.0% $1,831,732   100.0% $555,098  30.3% 
               
 Cost of goods sold  1,503,418   63.0%  1,118,953   61.1%  384,465  34.4% 
               
  Gross margin  883,412   37.0%  712,779   38.9%  170,633  23.9% 
               
 Facility and warehouse expenses  183,048   7.7%  143,918   7.9%  39,130  27.2% 
               
 Distribution expenses  172,566   7.2%  158,768   8.7%  13,798  8.7% 
               
 Selling, general and administrative expenses  263,372   11.0%  207,887   11.3%  55,485  26.7% 
               
 Restructuring and acquisition related expenses  8,412   0.4%  4,578   0.2%  3,834  83.7% 
               
 Depreciation and amortization  53,016   2.2%  30,883   1.7%  22,133  71.7% 
               
  Operating income  202,998   8.5%  166,745   9.1%  36,253  21.7% 
               
 Other expense (income):            
  Interest expense, net  27,059   1.1%  14,722   0.8%  12,337  83.8% 
  Loss on debt extinguishment  -   0.0%  -   0.0%  -  n/m  
  Gains on foreign exchange contracts - acquisition related  -   0.0%  -   0.0%  -  n/m  
  Other income, net  (3,279)  (0.1%)  (2,928)  (0.2%)  (351) 12.0% 
               
  Total other expense, net  23,780   1.0%  11,794   0.6%  11,986  n/m  
               
  Income before provision for income taxes  179,218   7.5%  154,951   8.5%  24,267  15.7% 
               
 Provision for income taxes  56,797   2.4%  52,475   2.9%  4,322  8.2% 
               
 Equity in earnings of unconsolidated subsidiaries  267   0.0%  (1,130)  (0.1%)  1,397  n/m  
               
  Net income $122,688   5.1% $101,346   5.5% $21,342  21.1% 
               
               
 Earnings per share:            
  Basic $0.40    $0.33    $0.07  21.2% 
               
  Diluted $0.40    $0.33    $0.07  21.2% 
               
               
 Weighted average common shares outstanding:            
  Basic  307,190     305,059     2,131  0.7% 
               
  Diluted  310,036     307,728     2,308  0.8% 
               
               
 (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 ) 
               
               
    Nine Months Ended September 30, 
               
Operating Highlights  2016   2015     
      % of   % of    
      Revenue (1)   Revenue (1) Change% Change 
               
 Revenue $6,758,999   100.0% $5,443,714   100.0% $1,315,285  24.2% 
               
 Cost of goods sold  4,193,203   62.0%  3,307,512   60.8%  885,691  26.8% 
               
  Gross margin  2,565,796   38.0%  2,136,202   39.2%  429,594  20.1% 
               
 Facility and warehouse expenses  519,323   7.7%  412,954   7.6%  106,369  25.8% 
               
 Distribution expenses  509,240   7.5%  450,521   8.3%  58,719  13.0% 
               
 Selling, general and administrative expenses  735,843   10.9%  616,924   11.3%  118,919  19.3% 
               
 Restructuring and acquisition related expenses  32,303   0.5%  12,729   0.2%  19,574  n/m  
               
 Depreciation and amortization  137,233   2.0%  90,118   1.7%  47,115  52.3% 
               
  Operating income  631,854   9.3%  552,956   10.2%  78,898  14.3% 
               
 Other expense (income):            
  Interest expense, net  68,032   1.0%  44,250   0.8%  23,782  53.7% 
  Loss on debt extinguishment  26,650   0.4%  -   0.0%  26,650  n/m  
  Gains on foreign exchange contracts - acquisition related  (18,342)  (0.3%)  -   0.0%  (18,342) n/m  
  Other income, net  (4,829)  (0.1%)  (912)  (0.0%)  (3,917) n/m  
               
  Total other expense, net  71,511   1.1%  43,338   0.8%  28,173  65.0% 
               
  Income before provision for income taxes  560,343   8.3%  509,618   9.4%  50,725  10.0% 
               
 Provision for income taxes  182,751   2.7%  177,255   3.3%  5,496  3.1% 
               
 Equity in earnings of unconsolidated subsidiaries  52   0.0%  (4,200)  (0.1%)  4,252  n/m  
               
  Net income $377,644   5.6% $328,163   6.0% $49,481  15.1% 
               
               
 Earnings per share:            
  Basic $1.23    $1.08    $0.15  13.9% 
               
  Diluted $1.22    $1.07    $0.15  14.0% 
               
               
 Weighted average common shares outstanding:            
  Basic  306,690     304,453     2,237  0.7% 
               
  Diluted  309,671     307,326     2,345  0.8% 
               
 (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 Nine Months Ended 
    September 30, September 30, 
            
     2016   2015   2016   2015  
    (In thousands) 
            
Net income  $122,688  $101,346  $377,644  $328,163  
Depreciation and amortization   59,488   32,974   150,370   94,688  
Interest expense, net   27,059   14,722   68,032  $44,250  
Loss on debt extinguishment (1)   -   -   26,650   -  
Provision for income taxes   56,797   52,475   182,751   177,255  
            
Earnings before interest, taxes, depreciation          
 and amortization (EBITDA)  $266,032  $201,517  $805,447  $644,356  
            
EBITDA as a percentage of revenue   11.1%  11.0%  11.9%  11.8% 
            
 (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 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 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 reconciles Net Income and Diluted Earnings per Share to Adjusted Net Income and Adjusted Diluted Earnings per Share, respectively:
          
          
          
   Three Months Ended Nine Months Ended
   September 30, September 30,
          
    2016   2015   2016   2015 
(In thousands, except per share data)         
          
Net income  $122,688  $101,346  $377,644  $328,163 
          
Adjustments:         
          
Restructuring and acquisition related expenses   8,412   4,578   32,303   12,729 
Loss on debt extinguishment   -   -   26,650   - 
Amortization of acquired intangibles   25,040   8,233   58,191   24,729 
Inventory step-up adjustment – acquisition related   (387)  -   9,826   - 
Change in fair value of contingent consideration liabilities   57   89   176   365 
Gains on foreign exchange contracts - acquisition related   -   -   (18,342)  - 
Excess tax benefit from stock-based payments   (4,984)  -   (11,471)  - 
Tax effect of adjustments   (11,491)  (4,351)  (37,748)  (13,018)
          
Adjusted net income  $139,335  $109,895  $437,229  $352,968 
            
          
Weighted average diluted common shares outstanding   310,036   307,728   309,671   307,326 
          
Diluted earnings per share  $0.40  $0.33  $1.22  $1.07 
          
Adjusted diluted earnings per share  $0.45  $0.36  $1.41  $1.15 
          
          
We have presented Adjusted Net Income and Adjusted Diluted Earnings per Share 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. We define Adjusted Net Income and Adjusted Diluted Earnings per Share as Net Income and Diluted Earnings per Share adjusted to eliminate the impact of 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, and any tax effect of these adjustments. The tax effect of these adjustments is calculated using the effective tax rate for the applicable period. 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 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 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 compares revenue and Segment EBITDA by reportable segment:       
               
               
    Three Months Ended Nine Months Ended 
    September 30, September 30, 
               
     2016   2015   2016  2015  
 (In thousands)   % of
Revenue
  % of
Revenue
  % of
Revenue
 % of
Revenue
 
               
 Revenue             
 North America  $1,046,665   $1,037,290   $3,214,762  $3,128,614   
 Europe   770,219    511,146    2,141,186   1,508,395   
 Specialty   312,590    284,306    937,969   809,858   
 Glass   258,525    -    468,703     
 Eliminations   (1,169)   (1,010)   (3,621)  (3,153)  
               
 Total revenue  $2,386,830   $1,831,732   $6,758,999  $5,443,714   
               
 Segment EBITDA             
 North America  $141,054  13.5% $128,506  12.4% $452,254  14.1%$416,774  13.3% 
 Europe   72,586  9.4%  52,733  10.3%  220,066  10.3% 153,199  10.2% 
 Specialty   32,449  10.4%  26,075  9.2%  105,979  11.3% 91,677  11.3% 
 Glass   27,758  10.7%  -  n/m   51,059  10.9% -  n/m  
               
 Total Segment EBITDA   273,847  11.5%  207,314  11.3%  829,358  12.3% 661,650  12.2% 
               
 Deduct:             
 Restructuring and acquisition related expenses   8,412    4,578    32,303   12,729   
 Inventory step-up adjustment – acquisition related   (387)   -    9,826   -   
 Change in fair value of contingent consideration liabilities   57    89    176   365   
               
 Add:             
 Equity in earnings of unconsolidated subsidiaries   267    (1,130)   52   (4,200)  
 Gains on foreign exchange contracts - acquisition related   -    -    18,342   -   
               
 EBITDA  $266,032  11.1% $201,517  11.0% $805,447  11.9%$644,356  11.8% 
               
               
 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 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 consolidated growth for Parts & Services Revenue and Total Revenue to constant currency revenue growth for the same measure:
          
   Three Months Ended    Three Months Ended 
   September 30, 2016    September 30, 2016 
 Parts & Services    Total Revenue   
 Revenue growth as reported  33.2%  Revenue growth as reported  30.3% 
 Less: Currency impact  (3.2%)  Less: Currency impact  (3.0%) 
 Revenue growth at constant currency  36.4%  Revenue growth at constant currency  33.3% 
          
          
 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 does not reflect our operations. 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 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  $475  $493  
       
Adjustments:      
       
Restructuring and acquisition related expenses   32   32  
Loss on debt extinguishment   27   27  
Amortization of acquired intangibles   83   83  
Inventory step-up adjustment – acquisition related   10   10  
Gains on foreign exchange contracts - acquisition related   (18)  (18) 
Excess tax benefit from stock-based payments   (11)  (11) 
Tax effect of adjustments   (47)  (47) 
       
Adjusted net income  $551  $569  
       
       
Weighted average diluted common shares outstanding   310   310  
       
Diluted earnings per share  $1.53  $1.59  
       
Adjusted diluted earnings per share  $1.78  $1.84  
       
       
We have presented forecasted Adjusted Net Income and forecasted Adjusted Diluted Earnings per Share in our financial guidance. Refer to the discussion of Adjusted Net Income and Adjusted Diluted Earnings per Share 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, we included estimates of net income, restructuring expenses and amortization of acquired intangibles for the full fiscal year 2016; we included for all other components the amounts incurred as of September 30, 2016. 
       
Contact:

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

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